By Sharon Bernstein and Rory Carroll
SACRAMENTO, Calif. Jan 9 California's
Democratic governor took a stern line on fiscal restraint as he
released a $107 billion budget plan on Thursday, potentially
inviting a fight with more progressive state lawmakers who want
to restore spending on social programs cut during the long
Governor Jerry Brown challenged lawmakers who want more
spending on schools, healthcare for the poor and other services
to make their case while passionately defending his plan at a
"Prudence is very difficult when the money is in," said
Brown, who proposes more funding for education while paying down
billions of dollars in debt and cutting spending on Medicaid,
the program that provides healthcare for the poor. "When the
money is in, everybody wants to spend it."
Brown's budget plan for the fiscal year beginning in July
calls for $106.8 billion in general fund spending, along with a
$1.6 billion rainy day fund. He also called for a constitutional
amendment to enshrine the rainy day fund into law.
The plan drew immediate criticism from advocates for the
poor. "People in our communities are frustrated," said Pete
Woiwode, an advocate with the California Partnership. "This is
clearly how the governor plays ball. He holds all the cards."
The governor's plan would increase general funding spending
by 8.5 percent. It proposes spending increases of 1.6 percent
for health and human services, 9.5 percent for K-12 education
and 10.8 percent for higher education.
Democrats control large majorities in both houses of the
legislature. But Brown, a Democrat, has charted a centrist path
as governor, sometimes alienating more liberal members of his
party with tightfisted fiscal policies credited with helping the
state right its finances and persuading voters to adopt
temporary tax increases in 2012.
Top Democrats in the state Senate and Assembly have tried in
recent weeks to lay out a more progressive budget agenda,
calling for public pre-kindergarten for all 4-year-olds and
restoring some of the deepest recession-era cuts to social
services. But on Thursday, Senate President Darrell Steinberg
and Assembly Speaker John Perez declined to criticize Brown.
Steinberg, whose press aide referred to upcoming budget
talks as a "five-month dance" with Brown, praised the governor's
fiscal restraint but also hinted at his own agenda. Brown will
present a revised budget plan in May that will kick negotiations
into high gear.
"I appreciate the governor's aggressive approach to more
than double the reserve and pay down debt even more quickly than
we had hoped," Steinberg said in a statement. "At the same time,
we must invest in the people of California, especially those
living in the economic margins."
POSITIVE FOR STATE'S CREDIT
Republicans generally backed Brown's approach. His plan
received a warm reception on the $3.7 trillion U.S. municipal
debt market, where two of three major credit rating agencies
whose opinions influence the state's borrowing costs have cited
its strengthening finances in upgrades to its general obligation
ratings over the past year.
In announcing the plan, Brown reaffirmed his support for
more crude oil production in California and said he opposes a
proposed tax on it.
His plan proposes using $250 million in funds raised through
California's carbon trading program to support its planned
high-speed rail project, which could eventually help lower
greenhouse gas emissions although its construction would
The plan also assumes a panel of federal judges will grant a
two-year extension to a long-fought order to reduce crowding in
California's troubled prison system, which would save the state
$90 million next year.
But the judges have not been receptive to granting long
extensions and last June threatened to hold Brown in contempt of
court if he did not comply with the order. Brown said he would
take money from mental health and anti-recidivism programs for
inmates if the judges do not grant the extension.
The upgrades by Standard & Poor's and Fitch Ratings reflect
California's improving economy and revenue as well as how Brown,
elected to his third term as governor in 2010, has forced deep
spending cuts to help close deficits, rallied voters behind tax
increases and won support from lawmakers for paying down debt.
California's finances were in a constant roil in the
previous decade, and three years ago its leaders faced a $25.4
billion budget gap and comparisons to economically and
financially beleaguered Greece.
"Think about how much that has changed," said Howard Cure,
director of municipal research at Evercore Wealth Management in
New York, which manages $4.9 billion in assets.
S&P analyst Gabriel Petek said Brown's budget plan "looks
fairly positive from a credit standpoint," adding that it
acknowledges many concerns investors have had about California.
Petek noted that the plan points to the financial challenge
of unfunded pension and retiree health liabilities of nearly
$218 billion and urged paying down internal loans and making
good on deferred payments the state used to help balance its
books in previous years.
"This is really in keeping with the philosophy he's taken to
managing the state's finances since he's come into office,"