SACRAMENTO – As revenues fall short of projections and California stretches into an eighth year of economic recovery, Governor Edmund G. Brown Jr. today released a revised state budget that funds core programs while paying down debt, saving money and holding the line on new obligations.
“The surging tide of revenue has begun to turn,” said Governor Brown. “Quoting Aesop’s fable of the ant and the grasshopper: ‘It is best to prepare for the days of necessity.'”
When Governor Brown took office, the state faced a massive $26.6 billion budget deficit and estimated annual shortfalls of roughly $20 billion. These deficits, built up over a decade, have now been eliminated by a combination of budget cuts, temporary taxes and the recovering economy.
Barring any significant changes, the budget over the next two years remains in balance. However, in the years that follow, the state’s commitments will exceed expected revenues with annual shortfalls forecasted to exceed $4 billion by 2019 – or worse with an economic slowdown or recession.
Significant details of the May Revision:
The Challenge of Fiscal Balance
The May Revision revenue forecast has been reduced by $1.9 billion, reflecting poor April income tax receipts and more sluggish sales tax receipts than expected, while Proposition 2’s required contributions have been reduced by a combined $1.6 billion. Even if the voters pass an extension of taxes, the longer-term budget outlook would be barely balanced. Until the voters decide in November whether temporary taxes should be extended, the May Revision reflects the principle that no significant new ongoing spending commitments should be made.
Investing in Education
Under the May Revision, the minimum guarantee of funding for K-14 schools is expected to grow to $71.9 billion in 2016-17, an increase of $24.6 billion over the last five years (52 percent). For K-12 schools, funding levels will increase by over $3,600 per student in 2016-17 compared to 2011-12 levels. This reinvestment provides the opportunity to correct historical inequities in school district funding with continued implementation of the Local Control Funding Formula. The May Revision provides $2.9 billion in new funding, bringing the formula’s implementation to nearly 96 percent complete.
The Budget also invests in the state’s higher education system to maintain the quality and affordability of one of California’s greatest strengths. The Budget keeps tuition at 2011-12 levels and commits $25 million in new one-time funding for the California State University to reduce the time it takes a student to successfully complete a degree.
Reducing Housing Costs
Approximately 1.5 million low-income California households pay more than half their income in rent, straining their ability to pay for other essential household expenses. In addition, the state has a disproportionately high share of the nation’s homeless and chronically homeless populations. The May Revision reflects $3.2 billion in state and federal funding and award authority for various affordable housing and homelessness programs. This amount includes recently created programs that pay for affordable housing in sustainable communities and housing for veterans.
Local land use permitting and review processes have lengthened the approval process and increased production costs. The May Revision proposes additional legislation requiring ministerial “by right” land use entitlements for multifamily infill housing developments that include affordable housing. This would help constrain development costs, improve the pace of housing production and encourage an increase in housing supply.
The May Revision also endorses a $2 billion bond from a portion of future Proposition 63 mental health revenues, which would enable the Department of Housing and Community Development to develop and administer homelessness and affordable housing programs with a particular focus on chronic homelessness. The May Revision proposes first-year funding of $267 million from the bond proceeds.
The state has taken historic steps in recent years to assist the state’s neediest residents. The implementation of health care reform has increased coverage under Medi-Cal to an additional 6 million Californians in just four years. The Local Control Funding Formula is concentrating the greatest school funding to students with the greatest need. The state guaranteed that 6.5 million workers are eligible for paid sick leave. The 2015 Budget Act created California’s first-ever earned income tax credit to help the poorest working families and encourage more families to claim the existing federal credit.
The January Budget proposed the first state cost-of-living increase for Supplemental Security Income/State Supplementary Payment (SSI/SSP) recipients since 2005. In April, the Governor signed legislation that will raise the minimum wage for all workers to $15 per hour as soon as 2023.
Accounting for the full implementation costs, the General Fund has incurred new obligations in the effort to counteract the effects of poverty totaling more than $19 billion (about $10.7 billion of which will be paid for through Proposition 98 funds).
The May Revision continues to reflect the Governor’s transportation package 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 increased funding would be coupled with Caltrans efficiencies, streamlined project delivery and accountability measures. The budget also includes $737 million ($500 million General Fund) for critical deferred maintenance at levees, state parks, universities, community colleges, prisons, state hospitals and other state facilities.
Fighting Climate Change
The May Revision supports California’s ambitious policies to advance clean energy with a $3.1 billion cap-and-trade expenditure plan that will reduce greenhouse gas emissions through programs that support clean transportation, promote transformational sustainable communities, reduce short-lived climate pollutants and protect natural ecosystems. Over multiple years, the cap-and-trade program gives the state the chance to transform communities – particularly those disadvantaged ones – into innovative, sustainable economic centers.
Additional details on the May Revision can be found at www.ebudget.ca.gov.