The California Budget Project  (CBP), a non-partisan policy think-tank, held its annual news briefing in the State Capitol last week, where executive director Chris Hoene laid out his organization’s analysis of Gov. Jerry Brown’s proposed state budget for the 2013-14 fiscal year. In a word, CBP’s message was all about caution: While the proposed budget spells good news for California’s economy, the state is not yet out of the woods.
Indeed, while the state budget looks to be in balance, thanks largely to new revenue generated from Propositions 30 and 39, proposed spending is still below pre-recession levels — especially in critical areas many Californians depend on, such as education and health care.
“California is back on track after years of serious budget challenges,” said Hoene, who addressed members of the media. “But we still have a long ways to go. A lot of Californians are hurting.”
Especially worrisome, said Hoene, is that California continues to experience widening income inequality, making it all the more critical that programs like Medi-Cal and CalWORKs remain adequately funded.
“Budget choices are about priorities and values,” Hoene said, adding that while it’s great to be back on a fiscally sustainable path, the State must “set priorities in investing in the future of California and help [Californians] find a bridge to prosperity.”
Gov. Brown has signaled his priorities in certain key spending areas. With regards to education, spending for K-12 schools is set to increase $9.2 billion due to Prop. 98, while funding for the University of California and California State University systems would increase by more than $250 million each – provided those universities don’t increase tuition or fees until 2016-17.
Medi-Cal is another area in which Gov. Brown has proposed changes. California currently ranks last in the country in per capita Medicaid spending, and while Medi-Cal (California’s Medicaid program) spending would increase by $15.6 billion this year under Brown’s plan, Hoene contends the state still isn’t spending enough. Gov. Brown has, however, opted to implement federal health care reform, which among other things will expand Medi-Cal coverage to previously ineligible adults via federal subsidies.
Going forward, California will need to decide whether the implementation of Medi-Cal expansion is best left to the state, or to individual counties. “There’s a lot of policy debate that’s going to happen in this arena in the coming year,” said Hoene.
Unfortunately, lamented Hoene, spending will remain at historic lows for human services programs. Such is the case with CalWORKs, the state welfare program that was severely cut in the aftermath of the recession and will remain at 2012-13 levels, despite 1 in 6 Californians now living in poverty. “CalWORKs is not keeping up with the cost of living,” Hoene said. “This is a program fundamentally designed to lift people out of poverty, and we have structured it to not do that.”
Still, said Hoene, there is somewhat of a silver lining in the form of increased revenues approved by California voters last November: “If Props 30 and 39 hadn’t been passed, we’d be having a very different conversation today. We’d be talking about what we’re going to cut next.”
Hoene dismissed critics of California’s tax increases on business, singling out Texas Gov. Rick Perry, who recently aired ads throughout the state encouraging businesses to flee California’s high taxes for the friendlier business climate of Texas. “Changes in tax rates do not affect migration patterns of wealthy people,” Hoene said, citing a Stanford University study tracking wealthy individuals’ tax filings following tax increases. Furthermore, he said, “we’re not that far ahead of the rest of the country [as far as tax rates].”
Despite the overall good news, from CBP’s vantage point, there is still much uncertainty as to how the budget will ultimately play out. Federal funds account for one-third of the state’s total revenues, so the outcome of any future federal budget debate will have a huge impact on California’s economy. The proposed budget also assumes the U.S. economy will grow by 2.7 percent, so national economic recovery will be another key to California’s fiscal health.
Regardless, Hoene concluded, with the new budget, state leaders “now have the opportunity to choose a fiscally responsible path, while reinvesting in vital public services that foster economic growth and contribute to broadly shared prosperity.”