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Copyright 2013 Sacramento Bee (California) All Rights Reserved Sacramento Bee (California) January 11, 2013 Friday SECTION: A; Pg. 1 LENGTH: 1488 words HEADLINE: Jerry Brown says California's budget deficit has disappeared BYLINE: BODY: Gov. Jerry Brown declared Thursday that California's budget deficit has vanished thanks to new tax hikes and past spending cuts, marking the first time since the recession that state leaders haven't faced a deep fiscal chasm in January. The Democratic governor proposed additional money for K-12 schools and higher education in his $97.7 billion general fund budget while restraining growth in most other programs. "We have to live within the means we have, otherwise we get to that situation where we get red ink and then go back to cuts," Brown said. "So I want to avoid the boom and the bust, the borrow and the spend, where we make the promise and then we take it back." Brown proposed an additional $250 million each for the University of California and California State University systems, with a catch: He wants to cap the number of state-subsidized classes students can take at 1.5 times the number typically needed to graduate. He believes students would earn degrees faster, opening slots and saving money. The governor embraced a key part of President Barack Obama's health care overhaul by agreeing to extend Medi-Cal to as many as 1 million low-income residents previously ineligible for the program. That mostly includes adults living without children. The federal government will pay nearly all health care costs for those individuals from 2014 through 2016. But Brown fears a reversal from Obama and Congress, as well as greater costs once California picks up more of the tab. Kevin Yamamura; kyamamura@sacbee.com

Page 2 Jerry Brown says California's budget deficit has disappeared Sacramento Bee (California) January 11, 2013 Friday

Brown unveiled the latest version of his K-12 funding overhaul, which eliminates most state-driven earmarks and directs more money to districts with impoverished students and English learners who are presumed to face greater challenges. The governor acknowledged that the proposal is controversial, especially in wealthier suburbs that stand to receive less funding than urban and rural districts. But he considered it a matter of fairness. "We know from back to Greek philosophy, Aristotle, that treating unequals equally is not justice," Brown said. "Growing up in Compton or in Richmond is not like it is to grow up in Los Gatos or Beverly Hills or Piedmont." Brown said California is finally spending less money than it takes in, the first time since Gov. Gray Davis in 2001 that a governor has made such a bold claim. "I would say it's probably too early to draw that conclusion," said Jeff Cummins, a political science professor at California State University, Fresno. "Historically, budget estimates have been wildly off. Saying 10 years after a structural deficit that we're out of the woods is premature." In a show of bipartisanship rare for a January budget release, Republicans and Democrats said they generally supported Brown's budget, especially now that tax battles are in the rearview mirror. Democrats now have enough votes to pass all of the budget on their own, including taxes, having claimed two-thirds control of both houses in November. Legislative Democrats are eager to restore some of the health and welfare programs they agreed to cut under Brown and former Gov. Arnold Schwarzenegger when money was tighter. But they kept their demands to a minimum Thursday, knowing it was Brown's day to set the mood and that the governor has no immediate desire to spend beyond schools. "This is a good starting point," said Assembly Speaker John A. Prez, D-Los Angeles, who wants to prioritize lowering tuition rates at universities this year. "But it is that, it's a starting point." Senate President Pro Tem Darrell Steinberg, D-Sacramento, said he embraces Brown's effort to spend more on education and pay down hidden debt over time. "I can only add that we can't forget and won't forget mental health, dental care and subsistence for the elderly and disabled and other related issues as the year progresses," Steinberg said. Assembly Republican Leader Connie Conway, R-Tulare, called the governor "the adult in the room," something no GOP member would have said two years ago when the governor wanted tax hikes. "He may need us because our restraint agrees with his, and we believe that we may be more restrained than some of our colleagues across the aisle," Conway said. Senate Republican Leader Bob Huff, R-Diamond Bar, appreciated the governor's message of austerity but noted that Brown's budget devotes higher taxes not just

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to schools but other state programs, contrary to the message of the initiative campaign. "The parents and the students that voted for Prop. 30 because it was going to go toward education should be disappointed," Huff said. While Brown touted his budget's hold-the-line aspect, some spending will grow because past cuts will expire or he saw fit to add money. State workers will return to full employment after a furlough-type cut expires in June, adding $402 million in general fund costs. The state will spend $143 million more to help welfare-to-work recipients develop job skills. Still, advocates for health and welfare programs criticized Brown for overlooking their needs. Vanessa Aramayo, director of the California Partnership coalition, said Brown and Democrats should consider taxes on oil production or reducing corporate tax breaks if need be. "It's all about choices, and he's choosing to put Wall Street ahead of Californians and the state's most vulnerable," she said. "We're calling on him to put families first." The state's judicial leaders were among the most frustrated Thursday. Brown proposed taking $200 million from their construction funds and kept their operational budget flat. Chief Justice Tani Cantil-Sakauye noted that courts in Los Angeles, Fresno and San Bernardino counties are slated to close without additional funds. "This budget doesn't answer our challenges and our problems," she said. She added that many trial courts are "still on reduced hours and not able to provide full justice to the public, particularly families and the injured." The nonpartisan Legislative Analyst's Office estimated in November that California faced a $1.9 billion deficit rather than the balanced budget Brown sees. Both predict surpluses in future years. The governor used more optimistic assumptions to bridge the difference. He maintains that the state will reap hundreds of millions of dollars more from ending redevelopment agencies and using cap-and-trade revenue. He also will delay $600 million in special state fund loan repayments. BUDGET HIGHLIGHTS Here are highlights of Gov. Jerry Brown's proposed budget for the fiscal year that begins July 1: o Taxes: Includes an extra $15 billion in revenue through June 2014 due to voter approval of Proposition 30, which increased income taxes on high earners and raised sales taxes. The tax increases allowed schools to avoid deep trigger cuts in December. o K-12 schools: Provides $56.2 billion for the year, a $2.7 billion increase over the current year. Budget includes additional money for smaller class sizes in K-3, but doesn't require districts to use the money for that. Shifts adult education to community colleges.

Page 4 Jerry Brown says California's budget deficit has disappeared Sacramento Bee (California) January 11, 2013 Friday

o School energy: Provides half of Proposition 39 funding - $450 million this year - to school energy efficiency projects outlined in the ballot measure that closed a tax loophole for out-of-state companies. o Courts: Proposes a $200 million cut that will delay additional courthouse construction projects for up to a year. o State workers: Assumes size of state workforce will remain flat, but includes money for previously approved salary increases. No new salary increases or furlough days are anticipated. o Child care: Proposes no new funds for various subsidized child-care programs, but calls for a study group to recommend streamlining of various programs. o Higher education: Proposes an average 10 percent general fund increase to CSU, UC and community colleges. Calls for efficiencies at three systems, including a cap on the number of hours a student can take at the lower resident tuition rate. No fee increases are envisioned. o Medi-Cal: Proposes to permanently extend the tax on managed care plans. Estimates that federal changes to Medicaid will cost the state $350 million extra in 2013-14. o Welfare: Continues major changes from last year that created a two-year time limit for adults to get cash grants and work assistance, but provides an extra $142 million to expand county-run employment services and case management. o SSI-SSP: Assumes cost-of- living increases in monthly grants for low-income aged, blind and disabled that will amount to $20 a month for individuals and $30 for couples. o In-home care: Proposes a 4.9 percent increase, in part to lift a previously approved 3.6 percent reduction in in-home recipient hours. Budget assumes state will prevail in court and implement a separate 20 percent reduction in hours on Nov. 1 for $113 million in savings. o Mandates: Eliminates requirement that local governments perform certain activities, including taking police reports for identity theft cases. LOAD-DATE: March 17, 2013