California’s Budget Surplus May Take Hit Due to Ongoing Feud With Trump Administration

An exterior of the state capitol is shown on January 5, 2006 in Sacramento, California. (Credit: David Paul Morris/Getty Images)

An exterior of the state capitol is shown on January 5, 2006 in Sacramento, California. (Credit: David Paul Morris/Getty Images)

California is preparing for a much smaller budget surplus next year because of its ongoing feud with the Trump administration, one of the state’s chief budget writers said Monday.

California is projected to have a $7 billion surplus, with $3 billion of it available to spend on recurring programs.

But nearly $2 billion of that amount would only come if California is allowed to keep in place a tax on the companies that manage its Medicaid program. California needs permission from the federal government to do that, and state lawmakers are not sure they will get it.

Democratic state Assemblyman Phil Ting, chairman of the committee that writes the Assembly version of the budget, said lawmakers are planning on Trump not approving the tax, meaning the surplus would drop to $4 billion, of which $1 billion would be available to spend on recurring programs.

Preparing to spend that money while facing such uncertainty “wouldn’t be the right thing to do,” Ting said.

“It’s getting harder to work with the federal government,” Ting said. “Every time there is an opportunity to fight with California, the Trump administration has really taken up that mantel and really tried at every turn to thwart many of our key policy agendas.”

But Sen. Holly Mitchell, chairwoman of the state Senate Budget Committee, said it was too early in the budget process to make decisions like that. California Gov. Gavin Newsom must send his budget proposal to the Legislature by Jan. 10. After that, the Legislature has until June 15 to pass it.

Mitchell said if California’s legislative leaders publicly say they are planning on the Trump administration not approving the tax, then that makes it more likely the Trump administration won’t approve it.

“That’s not a public statement I would have made today, personally,” Mitchell said, adding that “the state of California has any number of irons in the fire before the Trump administration” and the Legislature should be “strategic and smart” in its approach to the federal government.

Ting noted the state can always change its budget proposal in the spring, “when the revenue outlook is more solid.”

California has repeatedly battled with the Trump administration this year, including a fight over proposed new rules governing the state’s scarce water and a dispute about whether the state can set its own emission standards for cars and trucks. Meanwhile, Democratic Attorney General Xavier Becerra has sued the administration more than 50 times over various administrative actions.

California’s estimated budget surplus comes from the nonpartisan Legislative Analyst’s Office. Monday, Legislative Analyst Gabriel Petek urged lawmakers to be cautious with their spending, noting things outside of their control could damage the state’s finances — including natural disasters like wildfires.

While California’s economy continues to grow, Petek has pointed to troublesome signs in the housing market, trade activity and new car sales that point to higher risks of a recession. That has gotten Ting’s attention.

“We are very concerned that a recession is looming,” Ting said.

Ting’s comments came as he released his annual blueprint for upcoming state spending, which for now do not include proposals for new taxes or fees. Ting said he wants the state to spend more money on mental health treatment for homeless people and prison inmates. He also wants the state to let low-income adults 65 and older who are living in the country illegally be eligible for the state-funded health insurance program.

Ting indicated it could be difficult to accomplish all of those things if the state only has $1 billion in new money that lawmakers can spend on recurring programs.

“A billion dollars goes really quickly when you’re talking about higher education, health care, housing the homeless,” Ting said.

Gov. Gavin Newsom must submit his budget proposal to the state Legislature by Jan. 10. Lawmakers have until June 15 to pass a budget.

Correction: An earlier version of this Associated Press story used an incorrect spelling for the attorney general’s name. This story has been updated.

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