Aaron Read and Randy Perry
Aaron Read & Associates, LLC
Governor Jerry Brown’s first major action this year was his January 10 unveiling of the 2017–2018 California budget declaring the ambiguous state of our economy. “We’re in very uncertain times,” he said. “We’re very subject to a lot of unpredictability.”
With that said, Governor Brown released his $177.1 billion state spending plan ($122 billion General Fund) that assumes a multibillion shortfall over the next 18 months compared to what lawmakers projected when they passed the budget last June. The Governor admitted that the proposed budget takes a more pessimistic view of state tax collections than that of the nonpartisan fiscal review by the Legislative Analyst’s Office (LAO). As a result, his budget reflects almost $6 billion less in revenue across three budget years, ending in June 2018. That would leave the state with a $2 billion deficit if no changes are made.
The revenue numbers from Governor Brown are significantly below those put out by the LAO in November. The LAO had estimated that the state would collect $6.4 billion more from its three top taxes: personal income, sales and use, and corporation. The Governor’s proposal puts the projected increase at $3.4 billion. The disagreement over this particular number is not new. The Governor’s projected revenue numbers have been consistently lower than the LAO’s and the Legislature’s in the past, and this year is no different. The January budget release will be followed by weeks of budget subcommittee hearings, with the Legislature, as it has in the past, using the larger revenue numbers to craft a budget reflecting its priorities. This will be followed by the May Revision, a revised proposal in that reflects April tax receipts, followed by meetings with legislative leaders to hammer out any remaining differences. The director of the LAO said this budget was significant in its caution.
PORAC, along with Aaron Read & Associates, will be updating the Board and members on budget details once the full budget is released and reviewed. Below are some key items discussed in the January budget.
Keeping the Budget Balanced
The budget proposes $3.2 billion in solutions to ensure a balanced budget. By tempering spending growth rather than cutting existing program levels, these actions minimize the negative effects on Californians. The solutions include adjusting Proposition 98 spending, recapturing unspent allocations from 2016 and constraining some projected spending growth. In total, General Fund spending remains flat compared to 2016–2017.
Bolstering State Reserves
Proposition 2 establishes a constitutional goal of having 10% of tax revenues in the state’s Rainy Day Fund. With a $1.15 billion deposit in the budget, the Rainy Day Fund will total $7.9 billion by the end of 2018, 63% of the constitutional target. While a full Rainy Day Fund might not eliminate the need for further spending reductions in case of a recession or major federal policy changes, saving now would allow the state to soften the magnitude and length of necessary cuts.
Strengthening Transportation Infrastructure
Annual maintenance and repairs of California’s highways, roads and bridges are billions of dollars more than can be funded annually within existing revenues. The budget reflects the Governor’s transportation package, first proposed in September 2015, which would provide $4.2 billion annually to improve the maintenance of highways and local roads, expand public transit and strengthen critical trade routes.
Local Public Safety Issues
- 2011 Realignment Funding: To provide services more efficiently and effectively, 2011 Realignment shifted responsibility and dedicated funding for public safety services to local governments. In addition, community mental health programs previously funded in 1991 Realignment are now funded primarily by revenue dedicated for 2011 Realignment.
- Community Corrections Performance Incentive Grant: This was created to provide incentives for counties to reduce the number of felony probationers sent to state prison. The budget includes $114.9 million to continue this program.
- Post Release Community Supervision: The budget includes $11 million in the General Fund for county probation departments to supervise the temporary increase in the average daily population of offenders on Post Release Community Supervision as a result of the implementation of court-ordered measures and Proposition 57.
- Fines, Fees and Assessments Review: The court system and numerous programs rely on funding generated by fines, fees and penalties assessed on court filings and citations. In recent years, these revenues have dropped dramatically. The administration reviewed them last fall, examining court filings statewide, the revenues collected from these filings, traffic citations and the collectability of delinquent court‑ordered debt.
- State Penalty Fund: To recognize the decline in State Penalty Fund revenues, the budget proposes to reduce the number of programs supported by the fund. The existing programs were evaluated and funding from the State Penalty Fund was prioritized for law enforcement training, victim services programs and driver training programs. Based on the fund’s condition, State Penalty Fund support for the following programs, among others, is proposed to be eliminated:
■ Internet Crimes Against Children Task Forces, Office of Emergency Services: These task forces investigate cyber criminals who prey on children. In addition to the state funding, these task forces receive funding from both their local government and the federal government. This proposal would eliminate the state funding provided to these task forces.
■ California Gang Reduction, Intervention and Prevention Program, Board of State and Community Corrections: This program provides grants to locals to collaborate and coordinate with local jurisdictions to reduce gang and youth violence. This proposal would eliminate the grant program, as it is solely funded by the State Penalty Fund.