The Governor’s Proposed 2016-17 Budget: An Exercise in Creative Writing?

Last week, Governor Jerry Brown released his proposed budget for the 2016-17 state fiscal year, which begins on July 1. We hope that you’ve read our statement on the Governor’s proposal here and our “first look” analysis of key budget proposals. In our guide to California’s state budget process, Dollars and Democracy, we point out that each year’s proposed budget is a political document, reflecting the Governor’s view of the world: the Governor’s revenue and spending estimates, the Governor’s proposals, and the Governor’s rationale for those proposals. But while the proposed 2016-17 spending plan is in these ways a political document, many notable parts of this budget also represent an exercise in creative writing.

A number of statements highlighted below can be found in the introduction to the Governor’s budget summary, where he presents his case for his proposals. As we discuss, these statements diverge in some important ways from recent facts. And, these statements also happen to support the Governor’s position to use the state’s strong revenues for building budget reserves instead of boosting key investments in the state’s economic future. (Some key phrases are underlined in this post for emphasis.)

“Proposition 2 establishes a constitutional goal of having 10% of tax revenues in the Rainy Day Fund.” (page 5)

This statement is found in the part of the introduction to the Governor’s budget summary that seeks to make the case for putting more dollars into the state’s Rainy Day Fund (officially known as the “Budget Stabilization Account” or BSA) than is constitutionally required by Proposition 2. Approved by voters in 2014, Proposition 2 requires the state to set aside funds for building up the Rainy Day Fund and paying down budgetary debt.

But in fact, Proposition 2 does not establish a constitutional “goal” of having 10 percent of tax revenues in the Rainy Day Fund. Rather, Prop. 2 sets a cap on the size of the Rainy Day Fund at 10 percent of estimated “proceeds of taxes.” In other words, this provision of Prop. 2 is actually meant to limit the maximum size of the Rainy Day Fund, not establish that maximum as a goal. Calling the cap a constitutional goal is a creative reframing of a key element Prop. 2, and one that aims to provide a rationale for the Governor’s proposal to put $2 billion more into the Rainy Day Fund than Prop. 2 requires in 2016-17, a decision that would make less dollars available for other state priorities this year.

“California has an extensive safety net for the state’s neediest residents who live in poverty, and the state has maintained those core benefits despite the recession.” (page 10)

While California does have an extensive safety net, the state has not maintained core benefits in the wake of the recession. Some important examples of where the state has fallen short include:

  • CalWORKs: The California Work Opportunity and Responsibility to Kids (CalWORKs) Program provides modest cash assistance for nearly 1 million low-income children while helping parents overcome barriers to employment and find jobs. State policymakers failed to maintain core benefits to CalWORKs during and after the Great Recession, substantially reducing cash aid for families and imposing a 24-month limit on the amount of time CalWORKs parents can access the full array of welfare-to-work activities available under state law before having to meet less flexible federal work participation requirements. Despite being modestly increased in recent years, CalWORKs grants still remain below pre-recession levels and fail to lift most families out of “deep poverty,” which is defined as having an income that is below half the federal poverty line ($10,045 for a family of three in 2015). Yet even in light of the clear need to boost funding for CalWORKs, the Governor’s proposed budget does not make any new investments in this crucial support for children and their families
  • SSI/SSP: Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants help 1.3 million low-income seniors and people with disabilities to purchase food, housing, and other basic necessities. Grants are funded with both federal (SSI) and state (SSP) dollars. State policymakers made deep cuts to SSI/SSP cash assistance in recent years. SSP grants for couples and for individuals were reduced to federal minimums in 2009 and 2011, respectively. In addition, the annual state cost-of-living adjustment (COLA) for SSI/SSP grants was eliminated beginning in 2010-11. Due to these changes, the maximum SSI/SSP grant for individuals dropped below the federal poverty line in 2009 — and remains below the poverty threshold today. Although the Governor’s proposed 2016-17 budget would provide the first state cost-of-living adjustment (COLA) since 2006 — thereby providing a modest increase in SSI/SSP grants — one can’t really say that this key facet of the social safety was maintained in the aftermath of the recession.
  • Child Care: California’s child care and development system helps prepare children for school and provides affordable care so parents can find jobs and remain employed. However, state policymakers failed to maintain state support for this system during and after the Great Recession, cutting annual funding for programs by roughly 40 percent, after adjusting for inflation, and eliminating more than 100,000 child care and preschool “slots.” Recent years’ budget agreements have increased support for these programs, but funding for child care and preschool slots in 2015-16 (the current fiscal year) is more than 20 percent lower than that in 2007-08, after adjusting for inflation, and the number of subsidized slots remains far lower than prior to the recession.

The Administration’s claim that it has maintained core safety net benefits is a creative — in fact, highly questionable — interpretation of recent years’ budget choices that serves to support the lack of significant restorations in safety net programs in prior years as well as in the Governor’s 2016-17 proposal.

“If new ongoing commitments are made now then the severity of the cuts will be far greater — even devastating — when the recession begins.” (page 2)

The Governor has often put forth this argument in recent years to justify not making investments in public systems and services that help foster economic opportunity and security for low- and middle-income Californians. We have argued previously that this is one of the Governor’s storylines that is holding the state back from broader economic prosperity. What’s more, the premise of the argument reflects flawed logic that we should not invest in people today, for fear of not being able to offer the same level of support indefinitely. But even with the possibility of future cuts, we should remember that safety net programs provide much-needed assistance to individuals and families who are still facing serious economic challenges right now — assistance that can help provide a bridge to better economic opportunities. For example, a working parent trying to juggle work schedules and child care would certainly prefer having a slot in the state’s system of subsidized child care and preschool over the next couple of years, even if that slot were later cut during a recession. Plus, the opportunity to remain in the workforce while the slot is available could lead to other work and child care prospects, so that this family might not even need this subsidized slot down the road.

The Governor’s oft-used argument is a convenient reframing of the day-to-day reality that confronts California’s low-income individuals and families, deployed here in order to justify larger-than-required deposits to the state’s Rainy Day Fund and a lack of reinvestment in the state’s safety net.

“As the state’s economy has recovered, the past three budgets have restored some previous budget cuts and expanded services, such as [including other items]…spending multiple hundreds of millions of dollars on movie tax credits and child care…” (page 1)

This is one of the more baffling statements in the Governor’s budget summary. In 2014, state lawmakers expanded the film tax credit — a tax credit for companies that make movies or television shows in California instead of outside of the state — from $100 million to $330 million annually. But while it’s true that the state did expand this tax credit, it’s highly questionable whether this represents an improvement in state services. Not only did this expansion come at a time when policymakers were weighing the need to make additional investments in workers and their families, but film tax credits do not generate the economic or budgetary benefits needed to justify their upfront costs. There are various ways policymakers could have used hundreds of millions of state dollars each year rather than covering the large price tag of the expanded film tax credit. These include:

  • Expanding access to child care. The state could have increased the number of subsidized child care and preschool slots by 40,000, at a cost of approximately $300 million, according to the California Legislative Women’s Caucus.
  • Ensuring access to Medi-Cal. In recent years, California implemented a 10 percent cut in Medi-Cal payments to doctors, dentists, and other providers, potentially discouraging health care providers from participating in Medi-Cal. The Assembly Budget Committee estimated that repealing this cut would have cost $312 million in 2015-16.
  • Repealing the Maximum Family Grant (MFG) rule within CalWORKs. The MFG denies additional CalWORKs assistance when a child is conceived and born while any member of the family is already receiving assistance. Repealing the MFG, which is widely regarded as punitive and racist and pushes children deeper into poverty, would cost in the state in the range of $190 million to $220 million, according to both the Senate and Assembly Appropriations Committees.

So, while we don’t question whether the state expanded the film tax credit, we do question reframing its expansion as progress when other priorities that more directly improve outcomes for Californians were not advanced.

We realize, of course, that all budgets are political documents and reflect a point of view. We always start off our Dollars and Democracy training with a statement that budgets are about priorities, reflecting our values as a state. The statements above, drawn from the introduction to the Governor’s 2016-17 budget proposal, certainly reflect a particular approach to spending priorities. Yet as budget deliberations ramp up in the coming weeks, the fundamental question is whether these are the right priorities, or whether — in contrast — California should be placing a much greater emphasis on making critical investments that better support workers, families, and communities and pave the way for more broadly shared economic growth.

— Chris Hoene