LOS ANGELES — As expected, California Gov. Jerry Brown advocated for restrained spending in his State of the State speech even though revenues are coming in $5.9 billion ahead of expectations for the year.
"You are not going to hear me talk today about new programs," Brown said. "Rather, I am going to focus on how we pay for the commitments we have already made."
A recession of moderate intensity would cut the state's revenues by $55 billion over three years, Brown said.
"That is why it is imperative to build up the Rainy Day Fund – which was recently overwhelmingly approved by the voters – and invest our temporary surpluses in badly needed infrastructure or in other ways that will not lock in future spending," he said.
In order to minimize the zigzag of spend-cut-spend that has been the state's model over decades, Brown said the state needs to build a large reserve. The Golden State has a very progressive but volatile income tax that provides 70% of General Fund revenues, he said.
California Treasurer John Chiang agreed with the governor's approach.
"Renewal of the California dream of endless possibility depends on how we manage our state's curse of boom or bust revenues, as well as how we approach the state's crumbling infrastructure and growing economic inequality," Chiang said.
Brown wants the state to focus on paying down the $220 billion in pension liabilities the state has for state and university workers. He said the state has set aside only a token amount to pay for $72 billion in future retiree health benefits.
"These liabilities are so massive that it is tempting to ignore them," Brown said. "If we fail to acknowledge and pay for these obligations, we will unfairly burden future generations of Californians with these debts."
The governor said he wants the focus on state spending to be on one-time infrastructure spending to tackle the $77 billion in deferred maintenance on the state's roads, highways and bridges.
Brown proposed in his budget that the state use $2 billion of what he called "the temporary surplus" on one-time investments to repair and replace aging structures.
"Neglecting what we have built over many years and letting it further deteriorate makes no sense and will just pile up costs in the long run," he said.
He asked that state lawmakers adopt the federal government's newly-revised MCO financing reform to pay for increased Medi-Cal costs. The state now has 15 million people enrolled in Medi-Cal and Covered Care under the Affordable Care Act.
Program costs of Medi-Cal have grown by $23 billion in four years as the state begins to pay for its share of the millions of new enrollees, he said.
In 2012, the General Fund paid $15 billion for Medi-Cal, but by 2019 that number is expected to jump to $25 billion.
"Other states have taken advantage of this federal program and California should not shortchange itself," Brown said.
He also ticked off a list of the state's accomplishments after reminding everyone of the deep hole the state has dug itself out of since 2011.
Back then, the state deficit was $27 billion, California's credit rating was the worst in the nation and unemployment was 12%, Brown said.
Since then, Brown said, the state has had its ratings upgraded, turned the budget to surplus, paid down $26 billion in debt, created a rainy day fund, increased school funding by 51% and raised the minimum wage to $10 an hour. The state also has experienced the creation of 2 million jobs and seen the unemployment rate sliced in half, the governor said.
