Despite recovery, fiscal restraint urged in California budget plan

[January 09, 2014]  By Jim Christie and Sharon Bernstein

(Reuters) — California Governor Jerry Brown continued his message of fiscal restraint in his state budget plan, which would increase funding for education but not restore many recession-era cuts, including healthcare services for the poor.

Brown's plan, which was leaked on Wednesday night and posted online, proposes spending $106.8 billion from the state's general fund, and sets up a $1.6 billion rainy day fund, according to a copy posted on the Internet by the Sacramento Bee and confirmed to Reuters by an aide to a top Democratic lawmaker.

While the plan would increase general fund spending in the state's next fiscal year — by $8.3 billion, or 8.5 percent — it does not include many programs pushed by his fellow Democrats.

"Economic expansions do not last forever," Brown said in a draft introduction to the document, which includes a dramatic graph showing wild swings in the state's finances over time.

Healthcare advocate Anthony Wright, who said he was briefed on the budget proposal Wednesday night, expressed disappointment that despite the state's economic recovery, Brown is keeping many recession-era cuts in place.

"They are still moving ahead with a 10 percent cut to one of the lowest Medicaid rates in the nation," said Wright, executive director of Health Access California. "It's disappointing we're continuing to see many of the health and human services cuts from the depths of the recession."

At the same time, the plan proposes increasing spending on politically popular kindergarten-12 education to $61.6 billion from $55.3 billion as part of a new way of funding public schools that shifts extra dollars to districts with large numbers of students who are poor or do not speak English.

The document makes no mention of a plan supported by Democratic leaders of the Assembly and Senate to provide public pre-kindergarten classes to all 4-year-olds in the state. State Senate President Darrell Steinberg, who this week called publicly for Brown's support, did not comment on the omission.

Brown's budget plan proposes $154.9 billion in spending from all state funds, which includes the general fund, special funds and bonds funds.

Brown's office declined to comment on the leaked report, but aides moved quickly to reschedule the governor's budget presentation for Thursday morning instead of Friday as planned.

Among other programs, the budget will include $64.7 million to help pay for a program to make driver's licenses available to undocumented immigrants. The funding includes salaries for 822 staff members.

Brown's proposed budget increases spending by about 4 percent for Medi Cal, the state's version of the Medicaid healthcare program for the poor and disabled, and no longer calls for a retroactive reduction of fees paid to doctors. But the governor's program of fiscal restraint still includes a 10 percent cut in medical fees going forward, which healthcare experts have said would lead many physicians to refuse to accept Medi Cal patients.

The plan also proposes using $250 million in funds raised through California's carbon trading program to support the state's planned high-speed rail system, which has run into legal problems and rising criticism.

IMPROVING ECONOMY

Brown ended a decade of budget deficits in June by signing a spending plan for the current fiscal year with a surplus to help the state set aside $1.1 billion in reserve.

California's revenue has been on the upswing as its economy gradually improves and since Brown rallied voters in 2012 to approve temporary increases to the state sales tax and personal income tax rates for the wealthy.

Revenue from taxes on the wealthy's capital gains have figured prominently in the state's stronger revenue, which the Legislative Analyst's Office in November said could leave the state with a $2.4 billion reserve for the current fiscal year — more than double the Brown administration's estimate.

The reserve could climb to $5.6 billion in the next fiscal year assuming the state's current fiscal policies do not change, the office added.

Brown's budget plan notes that California's finances, while improved, face several challenges, including $354.5 billion in long-term liabilities. That includes unfunded pension and other retiree health liabilities of $217.8 billion.

Stock market volatility could also hurt California as an estimated 9.9 percent of its general fund revenue in the fiscal year beginning in July is expected to rely on capital gains.

The governor said the state also needs to continue paying back internal loans and making good on deferred payments it used to help balance its books in previous years.

The cost of that budgetary borrowing has been reduced from $34.7 billion to $24.9 billion this fiscal year and Brown aims to take it down to $13.1 billion in the next fiscal year and wipe it out in the following fiscal year.

As part of that effort, Brown wants to fully pay off the Economic Recovery Bonds the state issued in 2004 to help tackle budget deficits with an extra $1.6 billion payment.

Two of three major credit rating agencies whose opinions influence California's borrowing costs have cited California's improving finances in upgrades to its general obligation ratings over the past year.

(Reporting by Jim Christie in San Francisco; Sharon Bernstein in Sacramento; editing by Lisa Shumaker)

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