STATE BUDGET:
No New Tax Increases in Governor's Revised Budget

Governor Jerry Brown’s May budget revision, released May 11, does not include any new taxes. The governor proposed total spending of $183.4 billion for the 2017-18 fiscal year. Of that total, general fund spending is proposed to increase 1.2 percent, from $122.5 billion in the current year to $124 billion. The budget also sets aside $1.8 billion – half to pay down debt, and half to be deposited into the state’s rainy day fund.

The revised budget calls for $4 billion more spending than the $179.45 billion in Governor Brown’s January budget proposal, primarily for health care and education programs.

The January proposal included general fund spending nearly identical to the current level.

Governor Brown’s revised budget was released one day after State Controller Betty Yee reported that during the first 10 months of the 2016-17 fiscal year, the state collected total revenue of $96.88 billion – $1.74 billion higher than the same period in the prior year, but $211.3 million below the governor’s January budget projection.

Noting that the state’s personal income tax revenue collections in April were lower than anticipated, Controller Yee said: “This is another signal that we may be inching toward an economic downturn, and we must tailor our spending accordingly.”

Transportation

The budget proposes to spend $2.8 billion in tax revenue from newly enacted SB 1 (Beall), which includes gasoline and diesel excise taxes, sales taxes on diesel fuel, and a surcharge on vehicles called a “transportation improvement fee.” Revenue will be earmarked to roads, highways, trade corridors, public transit and walking and bike paths.

Cap-and-Trade Auctions

The budget summary released by the Governor’s Office outlined no substantive changes to the cap-and-trade auction. Governor Brown did say, however, that “we need to get cap-and-trade reauthorized now,” and that extending the program is vital to increasing auction revenue.

Federal Changes

The proposed budget assumes that there will be no large changes to federal tax policies, but that cuts to health programs are possible. During his 35-minute press conference, the governor repeatedly said the state should avoid any new spending commitments – and should bolster its reserves – in anticipation of the potential loss of federal dollars.

If the Trump administration’s healthcare reform measure is approved, for example, the state could lose billions of dollars per year, Governor Brown said. If that happens, he said, “What we have to do (to cut spending) is ugly.”

Spending Restraint Urged

Governor Brown noted that the state has increased spending by billions of dollars in recent years, including “phenomenal” increases in education and anti-poverty programs. He warned that based on historical trends, California is likely to enter a recession within the next two years.
“In the coming year, I don’t think even more spending will be possible,” the governor said. The goal, he said, must be to “manage wisely (and) manage compassionately, but nevertheless manage.”

The Legislature will continue negotiating the budget with the governor, with a June 15 deadline for passing a budget bill. The 2017-18 fiscal year begins July 1.

 

 

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