California Budget Proposal Is ‘Prudent and Bodes Well for Continued Fiscal Stability’
Gov. Jerry Brown answers a question concerning his proposed 2016-17 state budget at a news conference, Thursday, Jan. 7, 2016, in Sacramento. Rich Pedroncelli / AP Photo
Gov. Jerry Brown unveiled his spending plan for the Golden State last week, stressing the need for fiscal moderation, despite continued economic growth.
Pointing to California Gov. Jerry Brown’s ongoing push to restrain spending, pay down debt and pump money into the Golden State’s rainy day fund, Fitch Ratings on Tuesday gave the governor’s newly proposed budget a nod of approval.
Brown unveiled his roughly $170 billion spending plan for fiscal 2016-2017 last Thursday.
California’s economy has been strong in recent years. But Brown has warned that another recession will eventually occur, and stresses that new spending commitments should be kept moderate in the near term, in order to avoid massive cuts when the economy next falters.
“Fitch believes the approach taken in the budget proposal is prudent and bodes well for continued fiscal stability in light of the state’s volatile revenue stream and the possibility of future economic downturn,” the ratings agency said in a statement on Tuesday.
Brown, a Democrat, said in his budget letter to the state Legislature last week that 69.5 percent of California’s general fund revenues come from personal income tax, a source that tends to drop sharply when downturns unfold. The letter went on to predict that general fund revenue losses will “easily total” $55 billion over three years during a moderate recession.
Fitch highlighted Brown’s proposal to set aside $3.6 billion in the state’s rainy day fund. This amount is $2 billion more than what state law would require funneling into the budgetary reserve, and would bring its balance to an estimated $8 billion by the end of fiscal 2017.
California’s next fiscal year will begin on July 1.
Among the significant proposals in Brown’s budget are tax initiatives designed to help secure funding for Medi-Cal, California’s Medicaid program, which provides healthcare for low income state residents. The budget also includes plans to increase spending on K-12 education to about $10,591 per student, an increase of almost $3,600.
California continues to face a major budgetary challenge in the form of healthcare benefits for retired public workers. Unfunded liabilities tied to this expense now total about $72 billion.
In a report issued on Monday, the ratings agency Standard & Poor’s explained that the business service and technology sector in the Bay Area and Silicon Valley has propelled much of California’s recent economic growth. The report also suggested that the strong growth seen over the last few years in Pacific states will “cool somewhat” in 2016.
The Fitch statement said that while Brown’s newly proposed budget “assumes solid economic growth in both fiscal 2016 and 2017” it also acknowledges “the risks associated with slower global growth or a stock market correction.”
RELATED on Route Fifty: “Jerry Brown’s Proposed Budget Seen as ‘All Good News’ for California’s Counties”
Bill Lucia is a Reporter for Government Executive’s Route Fifty.
NEXT STORY: Every State's 2016 Legislative Calendar and Balance of Power