LOS ANGELES — California Gov. Jerry Brown cautioned against ratcheting up spending despite the current surplus as he released his $170.7 billion budget proposal for 2016-17.
"Relative to budgets in the past, this one is in good shape," Brown said during a press conference Wednesday in Sacramento. "Our rainy day fund is growing and the proposed budget for next year will have a healthy surplus even after spending several billions on long overdue infrastructure investments."
As he did last year, Brown warned that a significant chunk of California's revenues are based on volatile capital gains.
Nearly 70% of the state's general fund revenues come from personal income taxes, and "more than half of our income tax comes from the top 1%, who depend on capital gains," Brown said.
He emphasized that the state has a history of balanced budgets quickly falling into deficit, as he brandished a chart that he said showed that the pattern over the past decade has been for the state to experience short periods of balanced budgets followed by massive budget shortfalls.
During a moderate recession, as modeled in that chart, Brown said revenue losses to the General Fund would easily total $55 billion over three years.
His chart showed an estimated drop in capital gains combined with increased spending would result in a $43.1 billion deficit by 2019-20.
Brown might have a harder time convincing Democrats to keep spending down this year with 2015 tax revenues coming in $19 billion higher than expected when the 2015-2016 budget passed in July.
Leaders of the legislature's Democratic majorities played nice in comments about Brown's budget, but some also alluded to a potential battle on spending.
California Senate President pro Tempore Kevin de Le-n said Brown's budget "espouses a clear-eyed focus in maintaining California's fiscal stability" and he will continue to be a "partner in this endeavor."
But, de Leon added, "we can do this without having to overlook critical investments that steer the future of the state and lift our most vulnerable citizens."
The budget reflects historic levels of spending on education, but de Leon said lawmakers need to take a closer look at strengthening the healthcare system for the poor and the developmentally disabled.
In 2015, capital gains reached an all-time high and the state's Rainy Day Fund is expected to hit $4.5 billion by the end of 2015-16, according to Brown's budget.
"Despite the increase in one-time revenues, the budget remains precariously balanced for the long term after paying for existing obligations and the Proposition 30 temporary tax revenues expire," Brown said.
A temporary sales tax increase approved by voters in 2012 through Proposition expires this year. The second half of Proposition 30 – an income tax increase on higher-income residents – expires in 2018.
Brown prioritized paying down the state's pension liability and funding infrastructure improvements in the budget proposal. The current liability for state and University of California employees is $224 billion.
He proposed to spend $807 million for maintenance to state buildings, prisons, universities and parks. He also set aside $300 million for increased compensation to offset employee's retiree health care contributions.
State employee contracts expire in June. Brown said he hopes to negotiate employee medical benefits.
The budget also includes a $36 billion transportation proposal first outlined in his budget last year. The state has $77 billion in deferred maintenance on its infrastructure – the most significant part of that is the state's highways, roads and bridges.
A special transportation session proposed by Brown failed to reach an agreement before session ended last year. The legislature reconvened on January 4.