Assistant Dean Carson Bruno on "Jerry Brown's Shocking 2017-2018 Budget Proposal" | Real Clear Markets
Jerry Brown's Shocking 2017-2018 Budget Proposal
By Carson Bruno | January 19, 2017 | Real Clear Markets
Governor Jerry Brown last week proposed his 2017-2018 Budget – his second to last before he’s termed out of the governorship in 2018. The headline of this proposed budget was a projected $1.6 billion deficit. This news is shocking considering the Governor and the entire Sacramento establishment has been operating under the assumption of budget surpluses for the foreseeable future. Governor Brown, however, used the budget’s red ink to tout fiscal restraint.
There are two problems with this proposed budget, though. One, Brown hasn’t necessarily been too stingy with state finances and two, deficits like these are concerning when the economy is doing well.
Restraint is all relative: Jerry Brown has built a solid persona as the adult in the room in Sacramento when dealing with fiscal issues. California Republicans, with little to no sway over budget proceedings since Proposition 25 passed, have seen him as a reluctant ally on budget issues, while Sacramento Democrats attempt to push back as much as the veto pen allows. But Brown’s fiscal restraint posturing is more talk than action. His first enacted budget since re-election in 2010 totaled $128.3 billion (June 2016 dollars) in General and Special Fund expenditures. By 2016-2017, the budget had ballooned 30 percent to $167.1 billion. Overall, Brown has increased real General and Special Fund spending by an average of 5 percent per year. The only way you can say Brown champions fiscal restraint is if you are comparing him to the wishes and whims of Sacramento Democrats.
It’s the economy, stupid: The budget is as much a function of the economy as it is what legislators and the Governor wish to prioritize. In good times, the budget tends to naturally balance – that is, unless the Legislature and Governor decide to go on a spending spree. In bad times, deficits are the norm. Thus, during relatively good times, it’s very concerning to see a deficit. And California has been experiencing decent economic activity. Total employment since 2011 has increased 12 percent to 18 million; real GDP grew 15 percent between 2011 and 2015, and correspondingly, adjusted gross income (AGI) increased by 23 percent between 2011 and 2014.
But wait, you’re probably thinking, haven’t I been critical of California’s “comeback.” Yes, I have and for good reason. California’s recovery has been inconsistent across the state and been on the back of a single industry (and the wealth it has created for a small group). The budget doesn’t care how the economy is doing well; it just reflects that the overall economy is doing well. But our lawmakers should care. Think about this; 52 percent of the 2011-2014 AGI growth came from taxpayers making $400,000 or more. A small slip from this group and California’s revenues plummet.
California’s political system is structurally designed to think short-term – mainly because of term limits – and leave long-term issues to others to address. This is an issue when the budget has long-term impacts, even if it’s just for a single fiscal year. Luckily for us, though, even single-year budgets provide important warning signs, but it’s up to our elected officials to recognize them and take appropriate action. If not, they will find themselves in a very difficult situation and Californians – very likely the most vulnerable – will be the ones affected. And with Democrats controlling all levers of California’s state finances, they’ll have no one to blame but themselves.