Gov. Brown: California to Tackle "Wall of Debt"

California finds itself in the rare position of having a projected multibillion dollar budget surplus

By Jonathan Lloyd and Juliet Williams
|  Friday, Jan 10, 2014  |  Updated 12:05 PM EDT
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California Gov. Jerry Brown unveiled his new budget plan for the state on Thursday amid positive news about increasing revenues and improving job numbers, but was cautious about any new proposed spending and tax increases. Conan Nolan reports from Downtown LA for the NBC4 News at 6 p.m. on Jan. 9, 2014.

Conan Nolan

California Gov. Jerry Brown unveiled his new budget plan for the state on Thursday amid positive news about increasing revenues and improving job numbers, but was cautious about any new proposed spending and tax increases. Conan Nolan reports from Downtown LA for the NBC4 News at 6 p.m. on Jan. 9, 2014.

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New spending on schools, healthcare, social services and environmental programs are all part of Gov. Jerry Brown's budget proposal that includes an increase over the current budget tempered by what the governor called "wisdom and prudence" in the face of a projected multibillion dollar budget surplus.

The governor scheduled a news conference for 3 p.m. in downtown Los Angeles to discuss details of the plan. The announcement was bumped up by one day after the 271-page blueprint was leaked to news organizations.

Soaring revenue from an improving economy and voter-approved tax increases have put the nation's most populous state in the rare position of having a projected multibillion dollar budget surplus, a financial surprise that has fueled the big-spending dreams of Democratic state lawmakers. Brown proposes an 8.5 percent boost in spending from the current year's budget, but also takes aim at nearly $355 billion in unfunded liabilities and debts.

"In the face of such liabilities, our current budget surplus is rather modest," the governor wrote in the leaked budget summary. "That is why wisdom and prudence should be the order of the day."

His budget proposal for the 2014-15 fiscal year dedicates $11 billion to paying down the debts and liabilities. That includes $6 billion in payments that had been deferred to schools and nearly $4 billion to pay down the so-called economic recovery bonds left over from administration of Gov. Arnold Schwarzenegger.

The document notes that the state's revenue surge is due mostly to volatile sources, including capital gains and higher income taxes from Proposition 30, Brown's tax initiative. Some $4 billion in extra revenue alone will come from capital gains, driven largely by the soaring stock market.

"The combination of the capital gains surge and the temporary Proposition 30 revenues should leave no doubt that the state's modest surplus must be carefully guarded," the budget document said.

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Brown also proposes setting aside $1.6 billion for a rainy day fund and wants to work with lawmakers to alter a rainy day measure that will be on the November ballot.

He said the constitutional amendment as currently worded would not give the state enough flexibility to pay down debt and liabilities, does not address volatile school funding requirements and bases the amount the state would need to pay into the fund on historical revenue rather than spikes in capital gains.

In the budget proposal, the Democratic governor said his desire to start paying down the state's massive debts and create a reserve fund for future downturns is a way "to avoid the same traps of the past..." The governor faced a projected $25 billion deficit when he took office in 2011.

The state's legislative analyst has forecast that California will have a $3.2 billion operating surplus by the end of the fiscal year, one that is expected to approach $10 billion within three years.

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In his written summary, the Democratic governor notes that the end of the national recession and his voter-approved increases to the state sales tax and income taxes for high-earners helped end a cycle of deep budget deficits, which led to tens of billions of dollars in program cuts since 2008.

But he also urged caution among state lawmakers and a restrained approach to handling the budget surplus.

Under Brown's tax increase, Proposition 30, the state sales tax hike will last four years and the higher income taxes on those making more than $250,000 a year will last seven years. Combined, the tax increases generate about $6 billion a year.

In addition to addressing the state's debts, the extra tax revenue allows Brown to spend on other priorities, including: $815 million for deferred maintenance in state parks, highways, local streets and roads, K-12 schools, community colleges, courts, prisons, state hospitals, and other state buildings; and $619 million to expand water storage capacity, improve drinking water in communities where available supplies are substandard and increase flood protection.

The administration also includes in its budget several proposals to help comply with a federal court order that requires the state to reduce prison overcrowding.

It assumes that the federal judges will grant a two-year extension from the current April 18 deadline, freeing $81 million that otherwise would be spent on housing inmates. It also proposes expanding California's existing medical parole program, creating a new parole program for elderly inmates and increasing early release credits for nonviolent, second-strike offenders.

The proposal would give counties $500 million for more jail space to help accommodate the influx of inmates under Brown's criminal justice realignment plan, which sends lower-level offenders to county jails instead of state prison. It calls for moving some long-term inmates back to state prisons and encourages counties to send more inmates to state-run firefighting camps.
 

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