Governor pitches $122.5B California budget, warns of deficit

SACRAMENTO, Calif. (AP) — California Gov. Jerry Brown proposed a $122.5 billion state spending plan Tuesday and warned of a looming $1.6 billion budget deficit because of slow growth in tax revenues as the state faces uncertainty about federal funding under the incoming Trump administration.

President-elect Donald Trump and the Republican-led U.S. Congress have vowed to repeal or alter a host of programs that affect California, from immigration to President Barack Obama's health care law, which California has embraced by enrolling about 5 million people in private health insurance or publicly funded Medi-Cal coverage.

The proposed budget assumes federal policies remain the same, but Brown noted the uncertainty is another reason to maintain the fiscal prudence for which he consistently advocates.

"If they do go down that road, it will be extremely painful for California," Brown said of the Trump administration and Republican-led Congress.

About 1.4 million people signed up for coverage last year through Covered California, the insurance exchange created under the Affordable Care Act.

Nearly 90 percent received federal subsidies that would go away under previous GOP proposals to repeal "Obamacare." Another 3.8 million people with low incomes joined the Medi-Cal program, with 95 percent of their costs paid by the federal government, amounting to about $15 billion in subsidies during the current fiscal year.

Brown's proposal is his opening salvo in six months of spending negotiations with lawmakers. He seeks to boost the state's reserve fund to $7.9 billion — up from $6.7 billion in the current budget year — to help soften what he warned is an inevitable recession after 10 years of economic recovery.

"You've got to save your money or you're going to lose the farm," Brown said.

Republicans, who are more often aligned with Brown than legislative Democrats on spending, were cautiously optimistic about the governor's approach.

"Our California budget is perilously balanced," said Sen. Jim Nielsen, R-Gerber, the ranking Republican on the Senate budget committee. "The governor has, along with the Republicans, opted to hold the line on our spending. We cannot be getting loose with the purse in California."

In order to maintain current spending, Brown proposes cutting $3.2 billion, about half by giving schools and community colleges less than expected. He wants to stop enrolling new college students in the Middle Class Scholarships program, saving more than $30 million, cancel $300 million in previously approved upgrades to state buildings and drop a $400 million proposal for affordable housing that the Legislature rejected last year.

Brown also proposed cancelling higher payments for state-funded child care providers.

The governor's budget includes $800 million more to cover people who joined Medi-Cal under Obamacare. He also revisited his previous proposal, which has stalled in the Legislature, to increase gas and vehicle taxes to raise $4.2 billion per year for road construction and maintenance.

The 78-year-old governor also used his annual budget news conference to harp against a state tax system that he says is overly reliant on the highest-income earners, leading to inevitable boom-and-bust cycles dominated by the fortunes of Silicon Valley.

"This is not just some kind of, you know, quirk, or legacy or 'Brownie-ism,'" he said, noting that there has been reluctance to address the problem.

The governor's position sets up a likely skirmish with Democratic legislative leaders, who prefer to expand funding for higher education, social services and other state programs.

Democratic lawmakers offered tepid responses that continued to include increased spending on social welfare programs.

"We must work to pass a balanced and fiscally prudent budget that still invests in human capital," Senate President Pro Tem Kevin de Leon, D-Los Angeles, said in a statement.

Brown's proposal to eliminate college scholarships "is not a recipe for success," said Assemblyman Phil Ting, a San Francisco Democrat who leads the Assembly budget committee. Ting last month proposed $1 billion in new spending, saying California should continue spending money on important programs rather than act out of fear of uncertain policies from Washington.

Brown's spending proposal remains the same as the current $122.5 billion 2016-17 general fund budget but reflects cuts because inflation generally causes spending to rise each year. The general fund is the area over which the Legislature has the most control. Including restricted "special funds" and bonds, Brown's budget proposal is up 1.1 percent to $179.5 billion.

Brown's projection, as it historically has been, was much more conservative than the forecast from legislative analyst Mac Taylor, who has projected a $2.8 billion surplus. Taylor said in November that the state could weather a minor recession without major budget cuts.

Associated Press writer Don Thompson contributed to this report.