CORRECTED-UPDATE 2-California lawmakers pass budget, set aside rainy day funds

Fri Jun 14, 2013 7:35pm EDT

(Corrects district of Assemblywoman Nancy Skinner, paragraph 13)

By Sharon Bernstein

LOS ANGELES, June 14 (Reuters) - California lawmakers passed a $96.3 billion budget on Friday that would spend more on education, health care and other services while setting aside $1.1 billion for the state's first rainy day fund in years.

The spending plan makes changes to the way the state funds education, increasing the base amount spent on all students while funneling more money to districts with children who live in poverty or who do not speak fluent English.

It also restores funds that had been cut from dental programs for the poor, mental health services and assistance for veterans.

The $1.1 billion reserve was part of a deal negotiated with Governor Jerry Brown, who pressed fiscal restraint on the Democratic legislature. It marks a dramatic turnaround from four years ago, when the state was in the red by $16 billion.

"This was the first year in many that we weren't negotiating how deep to cut and what to cut," Darrell Steinberg, president pro tem of the state senate, said in an interview. "Instead, we were negotiating about restorations, and I think the biggest debate was how fast and how much."

After some arm-twisting from fellow Democrat Brown, including a threat to veto excessive spending measures, the lawmakers refrained from spending all of the money that the improved economy and a voter-approved tax increase provided.

Under the budget, due to take effect on July 1, California will spend $55.3 billion in state money on education, and repay $2.3 billion in debt. The state will also hand out about $1 million in so-called middle class scholarships for students in its public universities.

The budget, passed along party lines, must still be signed by Brown, and a spokesman said he might exercise his line-item veto on some provisions.

REPUBLICAN COMPLAINTS

The 2013-2014 budget wrangling marked the first time in years that one party - the Democrats - held a two-thirds majority in both houses, along with the governorship. California Republicans complained that their voices had not been given sufficient weight as the budget was crafted.

"To not even be involved in the process of the budget, to not even know what's in it  I have a problem with that," said Republican state Assemblyman Rocky Chavez, who represents the Southern California community of Carlsbad.

Republican state Senator Jim Nielsen, who represents a mostly rural district in the northern part of the state, said Democrats spent too much despite efforts at restraint.

"We have not gotten control of the out-of-control agencies and their spending," he said during debate on the measure.

Democratic assembly member Nancy Skinner, who represents Berkeley and other communities east of San Francisco, said Brown pushed hard to hold down spending - to the frustration of some in his own party.

"Many of us felt in the legislature a little more spending on a couple of areas that really had devastating cuts might have been justified," Skinner said.

In the end, Brown agreed to an additional $200 million in spending over an earlier proposal, Skinner said, which the legislature allocated to mental health, veteran services, the middle class scholarships, dental care and a few other areas.

The budget's biggest impact will be on public schools. Under a new formula backed by Brown and education reform advocates, the state will pay school districts extra money to educate children who live in poverty or do not speak English fluently.

In a compromise, Brown backed off on a version that would have provided some school districts less money than they would have received under the state's old system for allocating funds.

The new system would also transfer control over the money to local school districts - a change strongly supported by some school reform advocates. (Reporting by Sharon Bernstein; Editing by Cynthia Johnston, Toni Reinhold and Dan Grebler)

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