As the Capitol’s politicians begin their two-week dash to the June 15 budget finish line, two words suffice – gut check.
When Gov. Jerry Brown released his initial 2016-17 budget, he declared that since the state is overdue for a recession, he and the Legislature must restrain spending and build up the state’s “rainy day fund.”
When he released his revised budget in May, he cut his revenue forecast by $1.9 billion and said it “redoubles … commitment to fiscal prudence.”
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“The surging tide of revenue has begun to turn,” he said, quoting Aesop’s fable about the careless grasshopper and the responsible ant, “It is best to prepare for the days of necessity.”
Brown cited his budget staff’s calculation that even a moderate recession could cut state revenues by $55 billion over three years, six times as much as the $8.5 billion Brown’s budget would have in reserves.
However, Brown’s parsimonious attitude didn’t quiet the virtually unanimous demands by his fellow Democrats in the Legislature for more spending – or “investment” in the current parlance – on early childhood education, low-income housing, welfare and other expensive services.
So that makes the next two weeks a gut check. As Brown negotiates a final budget with legislative leaders, will he hold fast or give ground to the demands of legislators, unions and other advocacy groups that want him to loosen his purse strings?
Politically, Brown holds almost all the cards. He’s popular and has almost certainly run his last political race, so he needn’t worry about voter backlash. And he has the “line item” veto power, which would allow him to reduce or even eliminate any budget appropriation with no fear of being overridden.
Brown also can depend on the Legislature’s budget analyst, Mac Taylor, to back him up on the need to hold the spending line and put aside more in a “robust” reserve.
“There is no single ideal level for reserves,” Taylor told the Legislature after Brown released his revised budget.
“However, at this point in a mature economic expansion, we think it would be prudent to pursue a target for total reserves that is at least as large as the $8.5 billion amount in the governor’s revised budget proposal.”
Finally, there’s not much in the budget that would give legislators leverage on him. He’s made a few new proposals, such as $20 million for charter schools that school unions dislike. But they’re not game-changing important to him.
A side issue to the main budget is also a gut check for the governor. He’s proposed $3.1 billion in spending from proceeds of the state’s “cap-and-trade” auctions of carbon dioxide emission allowances, based on the assumption that the auctions will generate more than $2 billion a year.
However, this month’s auction generated less than 2 percent of its anticipated revenue, and it may be a semi-permanent condition due to a complex set of market conditions.
Will Brown now back away from his spending plan, a big chunk of which is designated for his pet bullet train project, or plow ahead on the assumption that it is a one-time hiccup and the money will be there?