California's feud with Trump could affect budget surplus

SACRAMENTO - 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.

“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,” Ting said.

Sen. Holly Mitchell, chairwoman of the state Senate Budget Committee, said it was too early in the budget process for lawmakers to make that decision. 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 the Trump administration is more likely to oppose the tax if California's legislative leaders publicly say they are planning on that outcome

“That's not a public statement I would have made today, personally,” Mitchell said. California has other issues in the works with the Trump administration, and the Legislature should be “strategic and smart” in its approach to the federal government, she said.

The state's estimated surplus comes from the nonpartisan Legislative Analyst's Office. Analyst Gabriel Petek reiterated his advice to lawmakers that they commit to not spending more than $1 billion of the surplus for ongoing expenses.

In addition to the possibility of the Trump administration not approving the Medicaid tax, Petek said wildfires and other disasters could also wreak havoc on state finances. And though the state's economy continues to grow, Petek warned of an elevated risk of a recession.

“In the real world, of course, the risk of a recession cannot be assumed away,” Petek wrote.

California has battled with the Trump administration over whether the state can set its own emission standards for cars and trucks and over proposed new rules governing the state's scarce water. Democratic Attorney General Xavier Becerra has sued the administration more than 50 times over various administrative actions.

Ting's comments came as he released his annual blueprint for upcoming state spending. Ting said he wants the state to spend more money on mental health treatment for homeless people and prison inmates. H 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.

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This story has been updated to correct the spelling of Xavier Becerra's name. It is Xavier, not Javier.