Analyst calls governor’s budget plan ‘reasonable’

Gov. Jerry Brown’s budget proposal may be too optimistic, but California’s finances still have shown dramatic improvement, the Legislature’s top financial advisor said Monday.

Legislative Analyst Mac Taylor said the state is likely to generate $2.1 billion less in revenue and savings than the governor is counting on. But after years of catastrophic deficits, that’s a relatively small gap in an estimated $97.7-billion proposal, he said.

“That’s not a startling difference,” said Taylor, who called the governor’s plans “reasonable.”

Brown and Taylor both see California’s finances on the upswing, but they’ve differed on how fast the finances are improving. The governor says the state’s deficit already has been wiped out; in November, the analyst projected a $1.9-billion budget gap this year.

Taylor did not back away from that estimate in his Monday report but described it as a “small problem” -- “not big enough at this point to worry too much.”

H.D. Palmer, spokesman for Brown’s Department of Finance, said the analyst’s report is proof the governor is taking the right approach. “Living within our means, paying down debt and strengthening education are the right policy choices for California,” Palmer said in a statement.

Taylor raised some concerns. The end of the federal payroll tax cut could lower economic activity, taking a bite out of tax revenue. A drawn-out fight in Congress over raising the debt ceiling could cause a slump in the stock market.

He also noted that Brown’s proposal “does nothing” to address mounting costs for teacher pensions and retiree healthcare. “There’s no plan as to how we pay those off,” Taylor said.

Unfunded obligations in the teachers’ pension fund were estimated at $64.5 billion over 30 years. For retiree healthcare, the estimate was $62.1 billion.

In addition, Taylor said, Brown’s plan could burn through much of California’s potential surplus, leaving the state without a cushion. Then, “if you get to the point where you have a downturn,” he said, “you’ll need to go back on those spending commitments.”

Assemblyman Jeff Gorrell (R-Camarillo), vice chairman of the Assembly budget committee, said California will need financial breathing room when the temporary taxes that voters passed in November expire in 2019. Otherwise, Gorrell said, the state could face “another massive deficit.”

Palmer said the administration’s own estimates show the state having healthy surpluses through 2017.

Taylor’s most pointed criticism involved Brown’s plan to use new revenue from Proposition 39, which changed how corporate taxes are calculated, to make schools more energy-efficient.

Because the ballot measure said projects would be selected based on energy savings and job creation, devoting the money to schools may not give the state the most bang for its buck, according to the report.

“The governor’s proposal very likely would not maximize state energy and job benefits,” it said.

Taylor did not offer alternatives.

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chris.megerian@latimes.com