California aims to avoid budget deficit amid slowing revenues

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[May 11, 2017]  By Sharon Bernstein

SACRAMENTO, Calif. (Reuters) - California Governor Jerry Brown is set to revise his proposed budget on Thursday, as the most populous U.S. state faces slumping tax collections and uncertainty over whether the federal government will cut health care funding for the poor.

The budget Brown proposed in January already required the first belt-tightening in years for California, calling for reductions in anticipated spending on education, child care, affordable housing and state office renovations to avoid a deficit of $1.6 billion.

On Thursday, Brown will update the size of the possible deficit and offer solutions, said H.D. Palmer, spokesman for Brown's Department of Finance.

He suggested that the governor, a fiscal moderate credited for turning the state's finances around after the economic crisis, would keep pressing for restraint in spending and an emphasis on paying down debt.

"The governor will continue to press his ongoing priorities, increasing the state's investment in education, continuing to address the state's long-term liabilities and keeping the state on a sustainable fiscal path," Palmer said.

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Key factors in determining how much the state can spend or save are unknown, Palmer said, in part because it is not yet clear the cost to the state of efforts by Republicans in Congress and the Trump Administration to repeal the Affordable Care Act and its expansion of Medicaid services for the poorest Americans.

Other unknowns include the possible loss of federal funding for so-called sanctuary cities and an effort to reform federal tax law.

Brown has also warned that the state, which generates revenue largely through volatile capital gains taxes, is overdue for a correction after years of economic expansion.

On Wednesday, State Controller Betty Yee said revenues through April for the fiscal year that began last July were $1.83 billion below initial estimates. Income tax in April lagged projections by about $708 million, she said.

"While we await the governor’s May Revision, this is another signal that we may be inching toward an economic downturn, and we must tailor our spending accordingly,” Yee said.

(Reporting by Sharon Bernstein; Additional reporting by Robin Respaut in San Francisco; Editing by David Gregorio)

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