By Jonathan J. Cooper
Jan 11, 2017 – 9:13 p.m. EST
SACRAMENTO, Calif. (AP) — California’s economy is expanding and voters just approved billions of dollars in tax increases, yet Gov. Jerry Brown this week projected a budget deficit for the first time in four years and called for spending cuts.
So what’s going on?
The paradoxical budget picture is a result of revenue growing more slowly than economists had predicted after years of rapid increases from a hard-charging economy. While Brown expects revenue to be up 3 percent next year, the governor and lawmakers assumed revenues would be even higher when they planned the current budget, and they spent accordingly. Costs are higher than expected, too.
Lower revenue and higher costs mean the state has approved spending money that Brown doesn’t think it will collect. He is proposing to cut $3.2 billion allocated to education, state building construction, affordable housing, college grants and child care providers.
“The red always far outweighs the black, and the years of surplus are very few in number and very modest, and the deficits are much larger in magnitude,” Brown, a Democrat, told reporters when he released his opening budget proposal on Tuesday. “And that really is the challenge of California.”
Brown’s administration says California’s three biggest income sources – personal income taxes, sales taxes and corporate taxes – are all coming in below projections.
That’s because recent growth in wages has been dominated by workers at the lower end of the wage spectrum who pay lower tax rates, including people getting a boost to comply with a new minimum wage, according to the Department of Finance.
Higher labor costs, combined with fears of lower earnings in the coming year, are diminishing corporate profits and the taxes they pay.
And sales taxes are depressed by high costs for housing and health care – expenses that don’t incur sales tax but eat up consumers’ disposable income and crowd out other spending.
Meanwhile, costs are rising.
For the current budget year, Brown and the Legislature approved $3.6 billion in new optional spending on programs they care about; about $700 million of it is for ongoing costs for universities, state workers, the courts and prison system, and social services. Another $2.6 billion was directed to reserve accounts.
They also under-calculated how much it would cost to operate Medi-Cal, the publicly funded health plan for the poor, by about $1.8 billion.
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