On January 10th Governor Jerry Brown will release his 2013-14 budget proposal.
Governor Brown has made pronouncements that he will be pursuing a "robust" agenda that reflects his interest in creating a legacy for his administration on issues such as high-speed rail and addressing the state's capacity to store and deliver water.
While advocating for about $100 billion in new spending for these stated projects Governor Brown has called for fiscal restraint from his own party by saying, "It will be an exciting year, but it has to be one where we keep one foot on the brake and the other foot modestly on the accelerator."
It remains to be seen what the newly elected supermajority world will look like. Will they exercise restraint and use the power granted to them for the benefit all Californians? Or will they abuse their authority to pay off special interests instead of fixing our state?
In November the non-partisan Legislative Analyst's Office (LAO) released a deceptively rosy picture of our state's budget, even going so far as to state a $9 billion budget surplus was possible by FY 2017/18.
Historically I have found the Legislative Analyst's Office to be non-partisan and measured. However, their projected budget scenario paints a promising fiscal picture based on too many caveats. Here are just some of them:
The supermajority will continue to follow current law regarding spending and that job growth and housing prices will continue to climb.
Washington politicians will address the "fiscal cliff." Based upon this week's vote for $632 billion in higher taxes and virtually no spending cuts, I think we can agree this issue has not been fixed.
California's Unemployment Insurance Trust fund has been insolvent since 2009; however the LAO assumes that the interest owed on the $10.2 billion obligation will decline over the life of their projection and that benefit payments will not rise. This is a completely unrealistic projection based on our state's current economic situation.
The legislature will not put funds into the state's Budget Stabilization Account, or rainy day fund, as required by voter-approved Proposition 58.
Proposition 98 funding for K-14 will not increase.
The state will pay down the debt as scheduled despite Governor Brown's stated preference of paying it down faster.
If any of these assumptions fail, they could have a drastic impact on the availability of any projected budget surplus.
Another assumption the LAO made is that tax revenue taken as a result of Proposition 30 will continue to come in as projected. How many of these job-creators will flee to Nevada or Texas, taking good-paying jobs with them? After Proposition 30 passed, a constituent of mine wrote me describing the specific steps he's taken to move his manufacturing business (40 local jobs) out of California. How many business owners are contemplating the exact same thing? If Proposition 30 does create an exodus of these higher income taxpayers from California, what will happen if the Democratic supermajority spends their way back into another budget deficit? Will they pass another major tax-hike to compensate for their overspending?
This year's budget was assumed to have a reserve of $948 million. However, the budget is now projected to suffer from a $943 million deficit because of the combination of both lower revenues (Facebook IPO debacle) and higher expenditures. We cannot afford to proceed in this manner.
The supermajority must exercise fiscal discipline in order to fix the structural deficit that exists in the state budget. State Controller John Chiang, a Democrat, issued this chilling warning when revenues fell 10.8% below their expected return in November, "This serves as a sobering reminder that, while the economy is expanding, it is doing so at a slow and uneven pace that will require the State to exercise care and discipline in how its fiscal affairs are managed in the coming year."
I call on my fellow Legislators to heed Controller Chiang's warning. The hard-working families of California realistically plan for their future and spend within their means. Sacramento needs to do the same.