Bloomberg News

Brown’s California Budget Dilemma No Shocker, Expert Says

May 15, 2012

Jerry Brown, governor of California. Photographer: Ken James/Bloomberg

Jerry Brown, governor of California. Photographer: Ken James/Bloomberg

Governor Jerry Brown’s forecast for a swelling California deficit shouldn’t come as a shock, as he balanced his budget by relying on optimistic revenue estimates, according to Christopher Thornberg, an economist in Los Angeles.

“The reason the revenues aren’t coming in as expected is that the state was counting on $4 billion that was never going to materialize,” Thornberg, a co-founder of Beacon Economics LLC, said yesterday by telephone. “It was eminently predictable from the very beginning.”

Brown, 74, yesterday proposed cuts in spending on welfare and indigent medical care, along with a shortened government workweek to cut payroll expenses by 5 percent, among proposals to reduce fiscal 2013 spending by about $8.3 billion. The Democrat earlier said the gap had widened to $15.7 billion because he overestimated revenue by $4.3 billion in January.

For the past four years, California lawmakers have curbed spending and boosted taxes temporarily to bridge combined deficits of more than $100 billion. Deeper cuts now threaten to shred safety nets for the poor, elderly and disabled, reduce subsidies to renowned state universities and strain funding for public safety and schools.

The budget plan would trim $880 million from CalWorks, a form of welfare that delivers money and job services to low- income families with children, and $1.2 billion from Medi-Cal, a Medicaid program that provides health insurance for the poor. It would also slice almost $453 million from child-care subsidies.

Hurting the Poor

“These cuts could mean that a woman living in poverty could have no source of public support,” Judy Patrick, president and chief executive officer of the Women’s Foundation of California in San Francisco, said yesterday by telephone. “A woman who has gone to work and is receiving a small childcare benefit would lose her childcare and potentially have to quit her job, which would cost the state more in services and loss of tax revenues.”

Brown’s plan to divert $410 million from a mortgage-relief settlement with large U.S. banks drew fire from state Attorney General Kamala Harris, a fellow Democrat, who said the money was meant to help homeowners. Brown proposed using the cash to cover the cost of paying off housing bonds and to finance Justice Department programs. The remaining $118 million would be held for similar uses in the next fiscal year.

“While the state is undeniably facing a difficult budget gap, these funds should be used to help Californians stay in their homes,” Harris said yesterday in a statement.

Shortened Workweek

To cut payroll costs, Brown proposed reducing state employee work weeks from 40 hours in five days to 38 hours over four. The goal is to avoid mandatory unpaid time off or job losses, according to the governor’s plan.

Most of California’s 214,000 employees would work 9.5-hour days, with three off instead of two, Marty Morgenstern, secretary of Labor & Workforce Development, said yesterday on a conference call with reporters.

The change wouldn’t affect pension benefits, which are tied to base wages rather than take-home pay, Morgenstern said. He said overtime issues the plan may raise are being explored with union leaders.

The state’s highest-paid workers would be subject to larger wage cuts, Morgenstern said. Negotiations with the unions on all of the changes must be completed before July 1, he said.

Brown proposed cutting about $292 million from the Cal Grant program, which gives students as much as $12,192 a year for expenses while attending California colleges.

“We will continue to seek a long-term funding agreement with the state that will provide the stable fiscal footing needed to preserve the university’s quality, access and affordability,” Steve Montiel, a University of California spokesman said yesterday in a statement.

-- With assistance from Michael B. Marois in Sacramento. Editors: Ted Bunker, Pete Young.

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net; James Nash in Los Angeles at jnash24@bloomberg.net.

To contact the editor responsible for this story: Stephen Merelman in New York at smerelman@bloomberg.net.


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