SACRAMENTO — California is poised to bring in $2.4 billion more in tax revenue than analysts predicted earlier this year, but don’t get too excited, Gov. Jerry Brown cautioned Tuesday — unanticipated expenses are piling up too.
The rising costs of public employee pensions, drought relief programs and a huge expansion of Medi-Cal driven by the new health care law have quickly gobbled up most of that windfall, said Brown, who released a revised state budget at a Tuesday morning news conference.
The $107.8 billion spending blueprint for the fiscal year starting in July is the largest in California history, but it ignores some key priorities identified by Democratic legislative leaders, such as universal preschool for 4-years-olds — which didn’t get a penny.
So brutal negotiations with members of the governor’s own party lie ahead.
Brown made his opposition to more generous spending clear, stressing that California already has hundreds of billions of dollars in unfunded liabilities and can’t afford expensive new programs. That’s why he also introduced a plan Tuesday to eliminate the state’s $74 billion teacher pension fund liability in 30 years, starting next year with a $450 million down payment.
“We’ve done a lot already, and we haven’t paid for what we’ve already done,” Brown said. “Without more taxes, there’s no other way around it. If you can find more cookies in the jar, then hallelujah.”
Republicans criticized Brown for making no changes to his plan to fund construction of the $69 billion bullet train with cap-and-trade revenue. But otherwise they endorsed his revised budget as a “pretty good” spending plan.
“I am glad to see the governor is continuing to prioritize fiscal responsibility,” said Senate Republican Leader Bob Huff, R-Diamond Bar.
Brown and legislative leaders from both sides of the aisle reached a deal last week to replace the “rainy-day fund” measure on November’s ballot with a new bipartisan plan that would set aside money equivalent to 10 percent of the state’s general fund. For the next 15 years, half that money will help pay down the state’s debts and liabilities.
Republicans were happy with the plan because it ensures not only that money will be saved but also that it can’t easily be siphoned off to create or maintain programs California can’t afford. Democrats like it because there’s still enough flexibility to tap that funding during future recessions.
Californians can thank a steadily improving economy and federal tax policy changes for the $2.4 billion in additional revenue. However, half of the money is needed to cover Medi-Cal costs that exploded between January and April as more than a million more people signed up for coverage for the health program for the poor than state budget analysts had predicted in January.
The fact that the growing Medi-Cal rolls will cost the state so much money might surprise many Californians since it has been widely reported that the federal government would pick up “100 percent of the tab” for the first three years of the program.
But because California did such a good job of getting people to sign up for health care, 300,000 more people than expected who were already eligible for traditional Medi-Cal signed up for the program. And under the law, the state and federal government must split the cost of those new Medi-Cal recipients.
Some Republicans chafed at the fact that Medi-Cal costs had risen so much so quickly, but Brown assured naysayers that having about 30 percent of the state’s population enrolled in state-funded health care is actually a good thing.
“It’s better to be healthy than to be sick,” Brown said. “This is not going to the middle class or the rich; it’s going to those who struggle the most.”
Health care advocates applauded the governor’s willingness to fully fund coverage for those in need, but they criticized his refusal to restore funding for other social services, including overtime for in-home aides who care for the disabled and Medi-Cal reimbursement rates. If the Medi-Cal reimbursement rate isn’t boosted, some advocates said, many patients who recently signed up for coverage will have no doctors to see.
“Our argument is that this cut was originally made in the throes of recession and should not be the benchmark for the level of service Medi-Cal provides,” said Anthony Wright, executive director of Health Access California, a statewide health care consumer advocacy coalition.
Other unanticipated costs that popped up over the past several months include a $254 million payment to the California Public Employees’ Retirement System for state workers’ pensions, $121 million in drought-related expenditures and $60 million aimed at helping the judicial system run more smoothly.
In February, the CalPERS board of trustees adopted new assumptions about how long state retirees will live. The impact of the new estimates will be $1 billion over three years.
The most surprising, dramatic piece of Brown’s revised budget proposal may have been his pitch to increase contributions to the California State Teachers’ Retirement System, which is now only 67 percent funded.
The governor would have teachers, school districts and the state gradually increase their contributions to CalSTRS and would eliminate its crushing unfunded liability in about 30 years.
Legislative leaders, including newly minted Assembly Speaker Toni Atkins, D-San Diego, praised Brown for pledging to tackle the teacher pension debt. But school district officials were far less supportive.
Under the governor’s plan, the percentage of teacher payroll the state contributes to the pension fund will increase from 5.5 percent to 6.3 percent, the percentage teachers contribute will increase from 8 percent to 10.25 percent, and the percentage districts contribute will more than double — jumping from 8.25 percent to 19.1 percent.
“That’s a huge change,” said Stephen McMahon, chief business officer of the San Jose Unified School District. If enacted, he said, “it will depress salaries and put compensation toward CalSTRS instead. It will be that much harder to recruit teachers.”
The omission of additional transitional kindergarten funding from Brown’s revised budget proposal dismayed boosters of public preschool, including Senate President Pro Tem Darrell Steinberg, D-Sacramento.
Still, Deborah Kong, president of the preschool and child-care advocacy group Early Edge California, said, “We’re confident something significant is going to happen in this budget.”
Staff writers Josh Richman, Katy Murphy, David E. Early and Howard Mintz contributed to this report.
