DISSECTING THE MAY BUDGET REVISE: NOT OUT OF THE WOODS, YET

Education scored big in the May Budget Revise unveiled Thursday (May 15) by Gov. Jerry Brown. The bulk of $6.7 billion in unexpected revenue generated by California’s economic recovery will flow to K-12 schools under the proposed spending plan, which overall totals a record $169 billion including $115 billion in general operating costs. Pundits, observers and editorial pages largely praised the plan for its moderation. Brown funneled $3.4 billion into the state’s new voter-approved Rainy Day Fund. About $436 million of that will go to helping the University of California pay down massive unfunded employee pension obligations. UC also got additional funding that will avoid tuition increases for two years, part of a larger agreement worked out by Brown and UC President Janet Napolitano. Brown also proposes whittling away at a $72 billion (and counting) IOU for healthcare benefits the state has promised to retiring public employees over the next 30 years. Achieving that will require getting sign off from public employee unions. And the overall plan now goes to the Legislature, where some lawmakers are angling to ramp up spending.

Although the flush budget is welcome news to many, it masks continuing major structural problems with the state’s finances. David Crane, former senior economic advisor to Gov. Arnold Schwarzenegger, outlines some of those problems in an informative OpEd that ran Monday (May 11) in the Sacramento Bee. Read the OpEd>>

Here’s a quick look at a few specific budget areas as they relate to Bay Area Council priorities:

On water and drought preparedness, the revised budget seeks a three-year appropriation of nearly $2.2 billion. The biggest recipients are groundwater contamination ($784m), water recycling ($475m), safe drinking water ($180m), and improved wastewater treatment ($160m). Funding is primarily supported by the recently approved Proposition 1 (water bond), with additional funding from the state cap-and-trade program and the general fund.

While it is a major issue across the state and in the Bay Area in particular, housing was not substantively addressed in the Governor’s revised budget. Housing is tangentially considered in the $400 million dedicated through the cap and trade spending plan to the Strategic Growth Council, a multi-agency group that coordinates funding for various sustainable communities programs. But, there are signs that money will be spent primarily on increasing affordable housing near transit hubs in “disadvantaged communities,” which excludes almost all of the Bay Area under a statewide standard.

The budget provides a total of $15.8 billion for transportation, including $1.6 billion in cap and trade revenues. The budget allocates funding for local road maintenance, public transportation, intercity rail capacity, and highway rehabilitation, with a major focus on repairing the state’s aging infrastructure. In order to address ongoing maintenance and repair needs, the state is now exploring new financing strategies such as Express Toll Lanes and the Road Usage Charge Pilot Program, in which drivers would pay for road maintenance based on the distance and time they use the roads rather than the amount of gasoline they consume.

One specific budgetary challenge facing the state is the substantial expense associated with high-cost drugs, and the governor included $223 million to cover expected cost overruns in this area. The Council has as a priority of controlling healthcare costs, and we also represent a region that is pioneering life-saving drugs and therapies. We will continue to be involved in this conversation, including serving on one of two workgroups that the governor has convened on these issues, to ensure that policy solutions strike the right balance between controlling rising costs and continuing to fund the innovation that helps to power our region’s economy.