The single most important factor in writing a new state budget is determining how much money there is to spend.
It’s not an easy calculation under any circumstances, because it involves forecasting – or guessing – how the state’s economy will perform many months in advance.
It’s become even more difficult in recent years not only because the economy has undergone wide swings, but because the budget has become increasingly dependent on taxes from a relative handful of high-wealth Californians. Their incomes are even more volatile than the economy as a whole.
The tendency has been for Capitol bean counters to underestimate the upside during economic expansions and the downside during recessions.
Moreover, there are often wide discrepancies between projections from the governor’s Department of Finance and the Legislative Analyst’s Office.
The Legislature often adopts the higher of the two, thereby giving it more money to spend, and compelling the governor, in Jerry Brown’s recent words, to “sort it out at the end.”
The early stages of the 2016-17 budget process appear to deviate from that pattern. Unusually, Legislative Analyst Mac Taylor generally pronounced Brown’s revenue estimates an “excellent starting point,” which is his way of saying he agrees with them.
That’s a little disappointing to Taylor’s bosses, who want to spend considerably more money than Brown proposes, mostly on “safety net” health and welfare programs.
That disappointment came through last week, when the Senate’s budget committee conducted an initial hearing.
“Revenue is an arbitrary number,” said Mark Leno, the committee’s chairman. He suggested that instead of using revenue as a starting point for deciding how much to spend on various categories, perhaps the Legislature should begin by deciding how much it needs – or wants – to spend.
That’s not likely to happen, so the budget friction is shifting from revenue numbers to how much of that revenue should be spent or saved.
Brown, openly fearful that “everything that goes up comes down” and that the state will face another recession soon, wants to divert several billion extra dollars into reserves, primarily his “rainy day fund.”
Democratic legislators are indicating they want to spend a big chunk of those extra dollars. Leno called them “part of the playing field.”
Under Brown’s budget, the state would have about $10 billion salted away to cushion the effects of recession by the end of the 2016-17 fiscal year, which is not as much as it sounds. Brown says even a moderate recession could slash revenue by $55 billion over three years.
“Historically, California budgets have been built around forecasts that assume uninterrupted growth,” Brown told legislators in his State of the State speech last week. “Just looking at the last two recessions, we notice that ongoing state spending accelerated right into the downturn.”
“I don’t want to make those mistakes again,” he added.