Brown Urges Restraint as Tax Revenue Falls

     SACRAMENTO (CN) — With tax revenue falling over $1 billion short of expectations, California Gov. Jerry Brown introduced a revised budget proposal Friday that aims to build the state’s reserves and freeze new spending by the Legislature.
     The fourth-term governor warned reporters that an expiring tax of California’s wealthiest earners combined with the state’s heavy reliance on volatile income tax revenues could soon push the Golden State back into the red.
     “This is a hold-the-line effort,” Brown said of his $169 billion total spending proposal. “Usually governors don’t tell you what the problem is over the horizon; I’m telling you what it is.”
     Bouncing between charts depicting past and future deficits, the Democrat continued to push a message of fiscal restraint and planning. He reiterated the importance of growing the state’s rainy-day fund, but acknowledged the trouble he might have convincing the Democratic-led Legislature to approve his cautious spending bill.
     “We’re going to have a very productive, substantive discussion and debate over the next month. But at the end of the day, we have to come out with a sizable reserve, we can’t have any significant new spending and we have to get ready for the downturn,” Brown said of the looming budget negotiations.
     Brown’s revised $122.2 billion general-fund proposal is slightly smaller that his initial budget bill released in January. The Legislature has until June 15 to approve the final budget.
     In January, the state’s coffers ballooned with billions in additional 2015 income and sales taxes and the gains spurred the Legislature to propose various new social programs, including raising the state’s minimum wage. Brown swiftly approved incrementally raising the minimum wage to $15 per hour in March, despite the billions in expected implementation costs.
     Tax collections have slowed since Brown’s initial proposal. On Monday, State Controller Betty Yee reported that vital April personal income tax receipts fell more than $1 billion below Brown’s January expectations.
     April collections are closely monitored by financial planners and are inherently important to governors finishing up their spring budget proposals.
     Overall, April’s total revenues missed Brown’s estimates by more than 6 percent and forced the governor to reiterate Friday the importance of planning for downturn.
     “Right now, the surging tide of revenue is starting to turn,” Brown said.
     Along with sluggish tax revenues, a temporary tax on California’s wealthy set to expire in 2018 could further jeopardize the state’s fiscal future.
     The latest data from the Yee’s office revealed that the Golden State’s top 1 percent of earners paid nearly half of the state’s income taxes in 2014, a nod to the significance of the tax Brown helped pass in 2012.
     California’s most powerful unions are pushing for an extension of Proposition 30, which increases personal income taxes on residents earning more than $250,000. The California Teachers Association and the Service Employees International Union said Wednesday that they have enough signatures to place a 12-year extension of the rich-tax plan on the November ballot.
     Brown shied from giving his stance on the proposed ballot measure, as he traditionally does on ballot initiatives, but said the state would “manage” the loss of revenue if it expires in 2018.
     State Republicans applauded the governor’s call to freeze new spending programs, and said that any additional spending should be used for one-time needs such as water and transportation infrastructure.
     “Republicans stand with the governor in his call for fiscal restraint,” Assembly Republican Leader Chad Mayes, R-Yucca Valley, said. “Saving for the future and addressing more than $200 billion of existing budgetary debts and unfunded liabilities is the right thing to do.”
     Democrats also embraced Brown’s message and thanked him for endorsing a plan to create housing for homeless and low-income Californians. The money proposed for the $2 billion homelessness plan would need to be approved by two-thirds of the Legislature — an impossible feat without some Republican support.
     “Homelessness plagues communities across our state so I’m very pleased Gov. Brown has embraced the Senate’s bipartisan ‘No Place Like Home’ proposal to direct $2 billion from the Proposition 63 bond to bolster local efforts to tackle this crisis,” Senate President pro Tempore Kevin de Leon, D-Los Angeles, said.
     The homeless housing proposal would alter and direct Proposition 63 funding, which was passed by voters in 2004 to help fund mental health programs. Brown’s proposal would also ease regulatory burdens on developers in order to speed up infill programs, to the dismay of environmentalists.
     The May revision increases K-12 education general-fund spending by 3.3 percent over current levels for a total of $87.6 billion.
     The California Department of Corrections and Rehabilitation would be given $10.6 billion under the budget, 8.6 percent of the general fund’s total. The department oversees and cares for an expected 128,000 inmates daily, and Brown’s proposal dedicates $250 million to future jail construction.
     The American Civil Liberties Union of California blasted the governor for adding jail spending at the expense of various social programs.
     “The governor’s revised budget proposal is at odds with Californians’ needs and values. Children living in deep poverty have once more taken a back seat, while the governor plans to waste hundreds of millions more to build fancy new jail cells,” ACLU director Natasha Minsker said in a statement.
     Brown regaled reporters with a “cute” handout of Aesop’s fable of the ant and the grasshopper to emphasize his urge to “save for the winter.”
     “I’m trying in whatever way I can to indicate that getting ready for a downturn is something that people for thousands of years have thought about. And for thousands of years, people have made mistakes and not gotten ready,” Brown said.

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