California Governor's budget has surprise: a surplus

SACRAMENTO, California Thu Jan 10, 2013 6:00pm EST

California Governor Jerry Brown speaks at a news conference in Los Angeles, California in this file photo taken August 28, 2012. California's economy is on the mend, but Governor Brown is expected to take a cautious approach to spending when he unveils his state budget plan on Thursday. REUTERS/Mario Anzuoni/Files

California Governor Jerry Brown speaks at a news conference in Los Angeles, California in this file photo taken August 28, 2012. California's economy is on the mend, but Governor Brown is expected to take a cautious approach to spending when he unveils his state budget plan on Thursday.

Credit: Reuters/Mario Anzuoni/Files

Related Topics

U.S. Secret Service provide security for President Barack Obama in Pensacola, Florida, June 15, 2010. REUTERS/Jim Young

Protecting the President

The Secret Service detail surrounding President Obama.  Slideshow 

SACRAMENTO, California (Reuters) - California's budget deficit is gone after years of financial troubles, Governor Jerry Brown said on Thursday, proposing a state budget plan that would raise spending on education and healthcare, boosting total expenditures by 5 percent with a surplus remaining.

But Brown vowed to push back at legislators eager to increase spending even more by restoring the billions of dollars to social services and other state programs cut in lean years.

"I am determined to avoid the fiscal mess that the last few governors had to deal with," Brown told reporters as he introduced his budget plan for the 2013-14 fiscal year beginning in July. Leading Democratic legislators agree with his plan.

California's economy melted down with the housing market, slashing the state's revenue, but it is finally on the mend. For years the state's leaders have tackled budget deficits with a combination of deep cuts and accounting gimmicks. The projected surplus is now the latest surprise.

Businesses are hiring again and voters in November approved temporary hikes to the state sales tax and income tax rates on wealthy taxpayers.

California's job growth tops the national average, unemployment has fallen to below double-digit levels for the first time in nearly four years and more money is expected to flow into state coffers from the voter-approved tax increases.

The state Department of Finance projected unemployment will fall to 9.6 percent this year and 8.7 percent in 2014.

Brown's budget plan projects $98.5 billion in revenues and transfers and plans spending of $97.7 billion, according to the proposal published on the state Department of Finance website.

That would leave a surplus of $851 million, in addition to a projected $785 million surplus for the current fiscal year, which ends in June, allowing the state to put $1 billion toward a rainy day fund. As recently as November, the state budget watchdog, the Legislative Analyst's Office, projected a $1.9 billion gap.

Brown also sees balanced budgets for the next four years.

Spending in the upcoming year is set to rise $4.7 billion from the current 2012-13 budget. Schools and universities will get a $4 billion boost, health spending will rise $1.2 billion, while transfers to local governments will drop $2.1 billion.

The 74-year-old governor said he aimed to focus education spending on the neediest students and districts, such as kids in poor areas like Compton, California.

But Brown, a Democrat with a national reputation as a liberal, plays up his penny pinching in California. He has repeatedly stressed the need for spending restraint.

The finance department estimates there is still a $28 billion "Wall of Debt" built up over years of internal borrowing, as well as more than $100 billion in unfunded liabilities in state-backed retirement health and pension systems.

In the municipal bond market, where the yield spread between California bonds and triple-A debt shrank in 2012, prices did not move.

Standard & Poor's Senior Director Gabriel Petek said Brown's budget proposal is encouraging and could help California's credit quality strengthen.

Standard & Poor's in November said California, its lowest-rated state at A-minus, may be in line for an upgrade it if maintains fiscal discipline.

Petek is heartened by Brown's caution, as the governor said the state's finances face risks stemming from talks in Washington over the federal budget, potential lawsuits, health-care cost increases and an uncertain economic recovery.

"A lot rides on the economy ... If the economy were to retrench, it puts them in a hard spot because a lot of the levers have already been pulled," Petek said, referring to spending cuts imposed in recent years.

Brown warned the state not to get exuberant over its improved finances. "It's very hard to say no. That's going to be my job," he said.

Some liberal lawmakers hope to restore cuts to health and welfare programs of the last few years after Democrats won a supermajority in the legislature in November's vote, giving them the power to raise taxes without Republican support.

State Senate budget committee head Mark Leno, a Democrat, said he expects a smooth budget process despite the call for restraint, embracing the idea that the state's finances should "hold steady."

But Leno wants to let local governments raise spending and has proposed a state ballot initiative that would be put before voters by lawmakers to make it easier to raise property taxes to fund schools.

Democrats and their allies who eager for more spending are calling for closing "loopholes" more than suggesting outright tax hikes. California Labor Federation chief Art Pulaski echoed Brown's caution and called for a review of tax breaks.

Republican State Assembly Leader Connie Conway backed Brown's messages of fiscal restraint and support for education.

Brown will present a revised budget plan in May after his finance department has a better outlook on the state's revenue trend. That plan will set the stage for final budget talks.

Leno said he expects a budget agreement with Brown before the start of the new fiscal year in July.

(Reporting by Peter Henderson and Jim Christie; editing by Tiziana Barghini, Theodore d'Afflisio, G Crosse, Andrew Hay and Dan Grebler)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see
Comments (4)
bobber1956 wrote:
Businesses are leaving by the thousands. Literally. If you check this out you wil see this article is a pack of lies:

This is REAL TIME here and now-and not very pragmatic.

One question I have-If there are alomst 4 times the number of people on food stamps than there are people “reported” unemployed what EXACTLY is giong on with the jobs market there? If you are working and still can not get off welfare and food stamps…WTH!

Jan 10, 2013 11:01am EST  --  Report as abuse
Loothor wrote:
That debt clock does not refute this article at all, “bobber1956″, perhaps you should make a better attempt to understand what you’re looking at before you freak out and start raving about “lies.”

A surplus in this year’s budget is not going to suddenly wipe out all the debt built up in the past. Given that the article specifically points out that 34 billion dollars in debt was added in just the last two years of budget deficits, not to mention any bonds that may have been approved for specific purposes, it’s hardly surprising that California has a lot of debt.

It’s also important to know exactly what that clock means, which is not made very apparent. Judging by the revenue and spending numbers (and by the little grey label in the upper left that says “state and local”), this is not a clock for the State of California government (which is the budget Governor Brown is talking about), but a clock for ALL governments within the state of California, State, Counties, Cities, etc.

As far as employed people needing food stamps, do have any idea how hard it would be to survive on a minimum wage job? Particularly if you have dependents? Do you think it would be easy to provide for yourself and a couple of children on $1200 a month? That’s assuming you work FULL TIME at minimum wage. The fact that many lower-end employed need whatever assistance they can find isn’t surprising at all.

Jan 10, 2013 5:48pm EST  --  Report as abuse
privatouring wrote:
Three news stories this week, all false:

(1) The California story is carefully worded so as to leave the impression that draconian taxes, profligate spending, and demagoguery of the most pronounced nature against all things normal has produced a budget surplus in the Bear Republic. The “surplus” is anticipated. But it will not occur. California will arrive to the parking lot in time to park beside Argentina. The parking lot’s name? Cash for Clunkiers Junque Yard.

(2) Hottest temperatures ever in America. George Bush still trying to kill children and minorities. Sorry, but Russia has been involved with an early outbreak of temperatures, well south of the Arctic Circle, that are record breaking for all times in terms of cold. Temperatures of 50 to 79 degrees below -0- F. The Canadian Northwest Territories are involved in the same situation…as is most of Alaska. It snowed, the heaviest snow in over 20 years, in Jerusalem. And the Arctic polar ice cap has seen the most extensive and quickest extension….last month in 30 years…this month in 50 years. Sorry Al…you were a fraud…you are a fraud…you will always be a fraud.

(3) Twice as many gun of all types in private hands in the United States as there were 20 years ago. Overall violent and significant property crime..DOWN 45% per capita in the last 20 years. Texas is the best example. Guns are not the problem. Lack of catechism…guiding life rules that put people in communion through morality is the solution…Democrat National Socialists are more concerned with “egalitarianism”…making everyone evil and self absorbed and selfish.

Sorry Reuters, and all the folks in the Obsolete Press…you have been outflanked on the battlefield of truth and ideals. We rubes still reject National Socialism, Jew-hating, Bolshevik Socialism, and the “strong strides toward a Brave New World.”

Jan 11, 2013 8:41am EST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.