Editorial: How not to blow California’s $8.8-billion windfall

In January, when Gov. Jerry Brown released his initial spending proposal for the next fiscal year, the state’s budget experts were projecting about $6.1 billion in extra revenue. That was very good news.

Now the news is even better. The expected surplus has grown to a whopping $8.8 billion, which amounts to almost 7% of the state’s current general fund. Even after socking money into the ”rainy day” reserve and pumping up education funding, there are billions left.

How to spend this windfall will be a topic of intense discussion over the next few weeks as legislators polish their pitches and counter-offers in preparation for a budget deal by June 15. Democrats envision expanding health insurance coverage to poor immigrants living here illegally, ending cash bail, and shoring up the safety net for the state’s poorest residents. Republicans want to spend the surplus on building infrastructure projects, giving tax rebates or even lowering tax rates.

We won’t suggest a laundry list of things that deserve to be in the final spending plan; that’s for lawmakers to figure out. But we urge them to focus on the state’s overarching needs — housing and homelessness — first, and not to treat this year’s fiscal good fortune as an invitation either to slash revenue or to weigh the state down with costly ongoing obligations.

The state’s dependence on volatile income tax revenue means that today’s peak could very easily become tomorrow’s trough. And adding new programs will make the cuts all the more painful during the next economic downturn.

For his part, Brown continues to be concerned about the state’s long-term fiscal health, and rightly so. In the revised $199.3-billion budget he unveiled Friday, Brown proposed only a limited number of new short-term spending initiatives, including $359 million to help counties pay for homelessness services until new fee and bond revenues start flowing and $312 million for mental health services. He also promised to push for a $2-billion bond on the November ballot to pay for housing for mentally ill homeless people, financed by an existing income tax surcharge on millionaires.

That’s just the starting point for negotiations with lawmakers hungry to do something bigger with the surplus. But as Brown has said with every budget proposal, we need to save for the eventuality of a recession. Meanwhile, even in this bountiful year, the state faces huge unfunded liabilities related to public employee retirement benefits, and it’s holding far too little in reserve for unemployment benefits. That doesn’t mean the state should never fund new programs, only that it should do so with a cautious eye on its future obligations and on the budget nightmares of the not-so-distant past.

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