LOS ANGELES — California state lawmakers reached consensus Tuesday on the most contentious budget issues, ahead of Thursday’s midnight deadline for budget passage.

Gov. Jerry Brown described the 2017-18 budget as “balanced and progressive,” adding that it keeps California on a sound fiscal path and "continues to support struggling families and make investments in our schools.”

"This is a sound, appropriate budget for this time in California's history," said State Sen. Holly Mitchell, D-Los Angeles, who chairs the Senate Budget Committee.
"This is a sound, appropriate budget for this time in California's history," said State Sen. Holly Mitchell, D-Los Angeles, who chairs the Senate Budget Committee.

Among the more contentious budget items were discussions on how to spend $1.3 billion in new tobacco taxes, a windfall anticipated from the $2-per-pack increase voters approved in November through Proposition 56.

The budget compromise would use tobacco tax money to increase payments by up to $546 million for doctors and dentists who see patients on Medi-Cal, the state’s subsidized healthcare program for the poor.

“The governor calls it progressive, but I think it is a sound, appropriate budget for this time in California’s history,” said Sen. Holly Mitchell, chair of the Senate Budget Committee, during a press conference.

The proposed $125.1 billion general fund budget for the fiscal year beginning July 1 would spend $3 billion more than the current year budget.

State leaders did not reach an agreement to extend the cap-and-trade program for greenhouse gas emissions, but Mitchell said during a press conference that lawmakers can deal with that issue outside of the budget process.

“The Senate Democratic caucus fully understood the importance of cap-and-trade,” Mitchell said. “We tackled transportation and I am certain we will step up to the plate on this issue and bring it forward when we know we can deliver.”

Mitchell noted that the cap-and-trade discussion doesn’t have the same deadline as the budget and that “the people have made it clear that the budget must be passed by June 15, or else,” she said.

The Legislature has until Thursday night to finalize the budget and send it to Brown, so it can be signed into law before the start of the July 1 fiscal year. If they pass a budget after June 15, lawmakers have their salaries docked.

Two separate audits — of the University of California president’s office and the Board of Equalization — that created controversy in recent months resulted in budget-bill reforms.

UC California President Janet Napolitano lost some financial autonomy and limits were placed on the Board of Equalization.

The governor had held up $50 million in funding for the nine-campus system contingent upon UC officials agreeing to institute all of the recommendations made in the audit. The budget conference committee determined that going forward the university system's budgeting needs to be conducted on a line item basis, “so the legislature can be clear on how the money coming out of the president’s office is being spent,” Mitchell said.

The budget includes $296 million for the UC system.

UC Board of Regents Chair Monica Lozano said in a June 5 statement that the regents had hired former California Supreme Court Justice Carlos Moreno and the law firm of Hueston Hennigan LLP to investigate allegations that the Napolitano’s office interfered in confidential audit surveys sent to university campuses.

California State Auditor Elaine Howell found UC failed to disclose $175 million in funds and paid administrators lofty salaries even as it prepared to raise tuition.

Moreno and the law firm will conduct a fact-finding review of actions undertaken by the Office of the President with respect to surveys of the California state auditor sent to UC campuses as part of the recent audit of the Office of the President.

The BOE is facing a massive overhaul that would shiftmost of the agency's duties to a new California Department of Tax and Fee Administration.

“It is obvious to us in the committee hearings that there was a breakdown in the chain of command, across the board of BOE,” said Sen. Richard Roth, D-Riverside. “Something had to be done to restore public trust in the process — and also in our tax and fees system.”

The tax board, comprised of four elected board members and the state controller, will continue to oversee property-tax assessments, assess taxes on insurers and collect taxes on alcohol. But tax appeals and sales-tax collection would move to the new state department, along with much of the board's staff of 4,700.

The board, which collects $60 billion in sales and use taxes, and other fees, has come under fire in recent months following revelations in an audit by the Department of Finance. The audit was a follow-up to one conducted by Controller Yee in 2015 that found the board had misallocated $47.5 million of tax revenue.

Yee and Board member Fiona Ma have pushed for changes.

The “Transparency and Fairness” legislation is neither transparent, nor fair, Board of Equalization member George Runner said.

“This last-minute budget power grab would strip California taxpayers of their right to bring their tax appeals before their elected peers,” Runner said. “In its place, the bill would establish yet another unelected and costly bureaucracy.”

The proposed changes go far beyond issues identified in recent audits, Runner said.

“Changes of this magnitude should not be rushed through the budget process, bypassing the deliberative process,” he said. “Instead they should go through the normal policymaking process to allow public input.”

In response to the Oroville damn spillway disaster, the budget directs $111 million of already authorized Proposition 1 bond funds to improve dam safety evaluations.

It also includes shifting $6 billion from a low-interest state fund to make supplemental payments to the California Public Employee's Retirement System.

It includes $2.8 billion for infrastructure repairs and adds $1.8 billion to the Rainy Day Fund bringing it to a total of $8.5 billion in 2017-18.

“This budget is a combination of fiscal responsibility, including the biggest reserves in state history, major spending improvements to fight poverty and improve education, and significant reforms stemming from our strong oversight of the Board of Equalization and the University of California,” said Assembly Speaker Anthony Rendon.

Even so, Brown acknowledged that uncertainty remains as changes by the Trump administration could send the state budget into turmoil "including defunding health care for millions of Californians and ending deductions for state taxes."

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