California Gov. Jerry Brown proposed fiscal restraint amid federal uncertainty.

LOS ANGELES — California Gov. Jerry Brown proposed a fiscally-restrained budget with a large rainy day fund pointing to uncertainty in state revenues and potential erosion in federal funding under a Trump administration.

At a Tuesday press conference, Brown proposed a $179.5 billion spending plan that he says eliminates a projected $2 billion deficit.

The governor called the budget the most difficult the state has faced since 2012 saying that the surging tide of revenue increases appears to have turned.

"The trajectory of revenue growth is declining," Brown said.

The state has missed revenue projections from the previous budget several times during the past six months.

Later Tuesday, after the budget announcement, the State Controller's Office announced that state revenues for December missed projections by $1.87 billion, coming in 12.7% less than anticipated in the 2016-17 budget.

Though Brown pointed to the potential harm to the state's financial position if Obamacare is repealed, the budget doesn't take into account any of the potential changes to federal funding.

"If there are cuts to Medicaid, we will have a big challenge on hand," Brown said. "We not trying to anticipate that in the budget, but it is another reason that the legislature needs to be prudent. There are a lot of uncertainties that could put a massive hole in the budget."

It is hard to imagine any politician taking away health insurance from 20 million Americans, Brown said.

"I know the Republicans are on that track, but I think the reality would be far more disruptive than what they are expecting," Brown said. "If they do go down that road, it would be extremely painful for California."

Michael Cohen, director of the state Department of Finance, said the state has run scenarios related to changes to federal funding and potential plans around the uncertainty, but the budget just notes the uncertainty.

"The budget reflects the current operation of law, so we will just have to be nimble and reflect that in the May revision," Cohen said.

The governor annually revises his budget proposal in May based on negotiations with legislators and to match the state's current fiscal situation.

The budget slows spending on Proposition 98, which guarantees an annual increase in K-12 spending. K-14 spending will still grow to $73.5 billion in 2017-18, up 55% from 2011-12.

The governor again introduced a transportation package, first introduced in September 2015, that would among other things set the gasoline tax, which now fluctuates, at 21.5 cents a gallon and index it to inflation; impose a new $65 annual fee on all vehicles; increase and index the diesel fuel excise tax.

It's supposed to bring in $4.3 billion a year.

The legislature has not been able to agree on a plan to tackle the state's billions of dollars in needed highway repairs.

Brown also asked lawmakers to solidify the status of the state's cap-and-trade program, in which polluters pay for the right to emit greenhouse gases in a market-based system.

He wants the legislature to approve urgency legislation, requiring two-thirds supermajorities, to extend the cap-and-trade legislation beyond 2020. The budget projects $2.2 billion in annual cap-and-trade expenditures.

The budget would deposit $1.15 billion in a rainy day fund for a total of $7.9 billion by the end of 2017-18.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.