California Gov. Jerry Brown proposed a $122.5 billion state spending plan Tuesday and warned of a looming $2 billion deficit because of falling tax revenues.
The proposed budget was announced as the state faces uncertainty about changes to come from President-elect Donald Trump and the Republican-led U.S. Congress.
Trump has pledged to repeal 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 budget assumes policies remain the same, but Brown noted the federal uncertainty is yet 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.
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 did not depart from his tradition of pushing to avoid long-term spending commitments that he says would have to be cut during the next recession. He pointed to lower-than-expected state revenue, uncertainty over Trump's policies and likelihood of a recession in the near future as reasons for caution.
His position sets up a potential skirmish with Democratic legislative leaders, who prefer to use the state's growing revenue to expand funding for higher education, social services and other state programs.
Brown's spending proposal remains the same as the current $122.5 billion 2016-17 general fund budget, but reflects cuts because inflation causes spending to generally rise each year.
The Democratic leaders of the Assembly and Senate budget committees, Assemblyman Phil Ting of San Francisco and Sen. Holly Mitchell of Los Angeles, say California should continue spending on important programs rather than act out of fear of uncertain policies from Washington.
The nonpartisan legislative analyst, Mac Taylor, released his budget forecast in November, projecting the state would have a $2.8 billion surplus after accounting for the higher cost of delivering state services for another year.
Taylor's office says the three biggest sources of state tax revenue were $1.4 billion below projections in the first half of the current fiscal year. Year-end taxes aren't fully accounted for and could still rebound.
The shortfall, which can be absorbed by budget reserves and would not require cuts, is due largely to lower-than-expected personal income tax revenue.