California's rebounding economy will pump $6.7 billion more than expected into state coffers next fiscal year, Gov. Jerry Brown announced Thursday -- a windfall that will mostly benefit K-12 schools and community colleges.
But in a $115.3 billion revised budget plan unveiled Thursday, Brown also proposed an earned income tax credit for the state's working poor and announced a deal with University of California President Janet Napolitano to hold tuition at the public university flat for another two years.
Brown and Napolitano sparred earlier this year over her insistence that the state provide hundreds of millions more dollars to the UC system if lawmakers wanted to see student fees stay put. After a series of one-on-one meetings through the winter and early spring, Brown said the duo agreed on a plan that will put nearly $450 million in state money over the next three years toward paying down a portion of UC's billions in unfunded pension debt.
In return, the university will agree to hold tuition flat for the next two school years and will lower its cap on pensionable earnings by UC employees.
In unveiling the revised spending plan, Brown was largely upbeat, noting that the state faced a $26 billion deficit when he was elected five years ago.
"I can say very simply that the state is definitely on the rebound from just a few years ago, when the state was mired in red ink," he said. "The finances have stabilized, we are balancing our budget, and just since January several billion have come into state coffers."
Most of the additional revenue, under the state constitution, is earmarked for schools: a total of $5.5 billion in new money, raising overall general fund spending to $49.7 in the fiscal year that begins on July 1. Some of that will go toward paying down debt the state owed to schools because of previous years of dismal revenues.
Brown's spending plan also sets aside more money for a rainy day fund authorized by voters last fall through Proposition 2. The revised budget adds $633 million in stashed-away funds through the Prop. 2 mandate, and pays down $633 million in existing state debts.
But in a nod to legislative Democrats, Brown is also pushing several spending initiatives aimed at helping the millions of Californians who live in poverty. Both Assembly Speaker Toni Atkins (D-San Diego) and Senate President pro Tem Kevin de León (D-Los Angeles) have made clear that their priorities include restoring deep cuts made during the recession to programs that benefit California's poorest residents.
Brown wants to establish, for the first time ever, a state equivalent of the federal earned income tax credit. His proposal calls for a slightly less generous tax break, set at 85 percent of the federal credit. It would apply to households on the bottom of the income ladder -- for example, a couple without kids that makes just $6,580 a year. On average, according to the governor's office, the tax credit would put about $460 a year back into the pockets of an estimated 825,000 families. The credit would cost the state about $380 million a year.
He said the federal credit was established in 1975, when he was first governor, and that it was a program he "always liked."
"Given the tremendous growth in income on the part of higher-income people, I thought it would be reasonable to establish this program in California," he said. "I have always liked the earned income tax credit because it doesn't have any particular bureaucracy, or complexity. It's just a straight deliverance of funding to people who are working very hard and who are earning very little money."
The governor is also proposing expanding Medi-Cal benefits to undocumented immigrants eligible for permanent residency under a executive order signed by President Obama in November. That order is being challenged in court, but Brown said that if it's upheld, state health care costs will rise $62 million next fiscal year and $200 million annually in the following years.
And the governor said he will push an amnesty program for the estimated 4 million Californians who have lost their driver's licenses and other privileges because they owe money for unpaid traffic tickets or other minor offenses. On Thursday, he called the spiraling debt related to such infractions a "hellhole of desperation" for the state's poor, and said the program would allow people to pay half of what they owe and get their licenses reinstated.
Democratic lawmakers have proposed more far-reaching plans, including expanding Medi-Cal to all undocumented immigrants, increasing reimbursement rates for doctors who take Medi-Cal patients, hiking state spending on early childhood education programs, and an earned income tax credit that matches the federal one. While Brown's budget falls short of those proposals, Atkins said it's a good starting place.
"My general takeaway of the governor’s May revision is positive," she said in an interview. "The governor has focused on one of our key priorities, poverty. I couldn't be happier with the earned income tax proposal. We have been working on that for quite a time in the Assembly -- I don't think anybody who works a full-time job should be in poverty in California."
Atkins also praised Brown's willingness to "reinvest" in the UC and California State University systems, though she said there's still work to do in that area, particularly around ensuring CSU is funded as well as UC, and prioritizing in-state students for enrollment and financial aid at both systems. And she noted that the budget includes no new spending on child care and early childhood education, a key priority for both her and de León.
"We know we are not going to get everything we want in this process," she said. "But I think we feel good that this year's budget, and the framework and architecture of it, is gonna help us be successful and make some progress in some key priority areas."
But advocates for the poor, including Mike Herald, said they are disappointed that Brown isn't addressing many of the state's "deep poverty issues."
Herald, from the Western Center on Law and Poverty, said the tax credit is a "good first step."
“But it really doesn't address some of the deep poverty issues we’re concerned about -- many families aren't earning money from work and they aren't going to benefit from a tax credit," he said.
"The continued investment in schools is really important, but it's only as good as how well the kids are clothed and fed and the living environment they have before they get to school," he said. "We think sometimes we are not looking at that side of the equation enough."
The Legislature has until June 15 to negotiate and pass a budget for the fiscal year that begins July 1.
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