First Look: The Governor’s Proposed 2016-17 Budget

The California Budget & Policy Center has published our “first look” analysis of the proposed 2016-17 budget that Governor Brown released last week. The executive summary of our report is below, and the full analysis is available on the Budget Center’s website. Stay tuned to this blog for additional analysis and commentary on the Governor’s proposal and this year’s budget deliberations.

Budget Proposal Misses Opportunity to Invest in Californians, Focuses Instead on Adding to Reserves

page 1 Full Analysis, 2016-17 ProposedOn January 7, Governor Jerry Brown released his proposed 2016-17 state budget, forecasting annual revenues that are $3.5 billion higher than previously projected for the current fiscal year (2015-16) and $2.4 billion higher for 2016-17. Despite this stronger-than-expected revenue growth, the Governor’s proposed budget misses a chance to boost investment in broadening Californians’ economic opportunity and security while still saving for a rainy day and paying down state debts.

The Governor’s proposal sets aside a portion of 2016-17 revenues — $3.1 billion — with half deposited in the state’s rainy day fund and half used to pay down state debts, as required by Proposition 2 (2014). However, the Governor also proposes to deposit an additional $2 billion in the rainy day fund beyond Proposition 2’s requirements, leaving significantly less funding for other priorities.

While heavily emphasizing growing the reserves, the Governor’s proposal misses several opportunities to strengthen vital public services and systems. It includes only modest increases for higher education — a key to the state’s economic future — no significant reinvestment in child care, and no additional investment in a welfare-to-work system that was deeply cut in recent years. Meanwhile, the proposal does not include a plan to tackle systemic issues — including over-reliance on incarceration — that contribute to ongoing prison overcrowding and persistently high corrections spending.

The Governor’s proposal takes a number of positive steps, including continuing support for the state’s new Earned Income Tax Credit (EITC); advancing a new proposal to revise and extend a tax on managed care organizations (MCOs) that, if left unaddressed, would result in a $1 billion General Fund shortfall; and providing the first state cost-of-living adjustment (COLA) since 2006 for cash grants for low-income seniors and people with disabilities. The Governor’s proposal also reflects a sizeable boost in funding for K-12 schools due to a growing economy and the temporary tax increases put in place by Proposition 30 (2012).

Despite a strong revenue outlook, the Governor’s budget proposal falls short of presenting a plan that adequately prepares the state for future growth by striking a balance between saving for a rainy day and addressing the state’s biggest challenges: stagnating wages for low- and middle-income Californians, widening income inequality, and public supports weakened by years of disinvestment.

Read full report.