News & Updates - Now we’ll see if Jerry Brown remembers the 1970s: Guest commentary
Now we’ll see if Jerry Brown remembers the 1970s: Guest commentary
By Rob Lapsley, The Los Angeles Daily News, August 11, 2016
When Jerry Brown became governor in 1974, California was in a recession. But over the next five years, the state’s recovery produced 2.1 million jobs, and Brown’s fiscal restraint created a $4 billion reserve in a general fund of $12 billion.
Unfortunately, the fiscal restraint was short-lived. Policymakers reverted to old habits, increasing spending while assuming revenues would grow forever. By 1980, state revenues grew 91 percent, but expenditures grew even faster — by 108 percent!
Revenues slowed dramatically in two economic downturns in the following years. When Brown left the governorship in 1982, California had a $1.5 billion deficit.
Fast forward to 2011, when Brown, elected governor again, faced yet another downturn, this time a massive recession. The state had a very different economic landscape than in his previous terms. The population was 39 million, not 14 million. Real gross domestic product (GDP) growth averaged just 2.7 percent, not the 5 percent and higher of the 1970s.
This time, our recovery is structurally different, with 55 percent of jobs and income growth coming in the Bay Area while inland areas show the worst unemployment rates in the country. Since the recovery started in 2010, California has grown nearly 2 million jobs. But rather than a broad recovery, we’ve seen a new type of economy emerge where only the higher- and lowest-wage industries are growing, while we’ve lost more than 2 million middle-class jobs in key sectors like manufacturing.
Our general fund is now $122 billion, thanks in part to voters approving Proposition 30 to raise $7 billion annually in taxes in 2012. Concurrently, the Legislature topped this with $20 billion in higher fees and dedicated taxes for special fund accounts. General and special fund revenues have grown $44 billion since 2007-08, and $65 billion since the recessionary low in 2009.
Today, under Brown’s leadership, California again enjoys a budget reserve through a constitutional change he championed that created the state’s Rainy Day Fund. While the fund’s balance is $9.4 billion, that’s still a buffer of only 8 percent, far less than will be needed in the next downturn.
But the more things change, the more they remain the same. This year — as in the 1970s — legislators and special interests are pressuring Brown to increase spending beyond his proposals and our current growth.
K-14 education gets $57 billion of our $122 billion general fund budget. While our enrollment has remained level, our recovery has given them a 51 percent increase — $24.3 billion — pushing education funding to its highest level in state history.
Salaries are up $4.5 billion for all state employees, even with 1 percent fewer positions. Pension payments are $3.4 billion higher with a $140 billion unfunded liability. Employee health benefits are up $1.1 billion to $8 billion annually. The future state cost of this year’s minimum wage hike is $10 billion, $3.4 billion from the general fund.
Medi-Cal now covers one-third of all 39 million Californians at $385 million more this year, with another $1.7 billion as the full cost sharing is phased in. New social welfare spending claim another $3.5 billion.
While the $44 billion revenue increase sounds large, these growing spending commitments already are crowding out other worthy programs, like on-going road maintenance.
The $7 billion in Prop. 30’s temporary tax revenues start expiring in 2017. The state will be in the red by 2018 under our current economy.
Meanwhile, legislators accept our lower economic growth rates while adding new regulations, taxes and fees instead of reforms to grow jobs and discipline spending. There is little concern that resources spent on these costs means less will be reinvested by businesses to expand jobs which results in increased public revenues.
The prior five years of prudent fiscal management clearly show Gov. Brown learned from the 1970s, but the pressure on increased spending now threatens a deficit again at the end of his governorship.