Riding a wave of new tax revenue, California's spending plan for the coming fiscal year will rise by 7 percent, a powerful indication that the state that came to symbolize fiscal mismanagement during the heart of the recession is emerging into brighter days.
Gov. Jerry Brown on Thursday proposed a $97.6 billion general fund budget for the 2013-14 fiscal year that wipes out years of deficits and even includes a modest surplus.
The additional revenue hiked the spending plan by $6.3 billion over the current year and helps the governor pour more money into public schools and universities.
The state's budget shortfall stood at $25 billion when Brown took office two years ago. (View the hour-long presentation below.)
"California today is poised to achieve something that has eluded us for more than a decade — a budget that lives within its means, now and for many years to come,"Brown said during a news conference at the Capitol.
A rebounding economy coupled with new revenue from the higher sales and income taxes voters approved last November have put the nation's most populous state on a healthier financial trajectory as it begins to turn the corner on an era of deep budget shortfalls and spending cuts to core state programs.
But the Governor may struggle with his own party. Democrats now hold a super-majority in both the Assembly and Senate, which means they can pass spending bills without Republican obstruction, and they can override the Governor's vetoes.
But on Thursday, Assembly Speaker John Pérez (D-LA) didn't challenge the Governor's call for prudence.
"We have bought stability in a time when people didn't think that was possible," Pérez said. "And we have demonstrated a degree of fiscal discipline that some doubted we would be able to muster."
Ironically, Republican lawmakers are backing Brown's eforts to control spending.
"We want to work with the Governor," said Assembly minority leader Connie Conway (R-Tulare). "He may need us, because our restraint agrees with his and we believe we may be more restrained than some of our colleagues across the aisle."
Her sentiments were seconded by a Republican colleague from the Sentate.
"It's a nice problem to have more revenues," said Senate minority leader Bob Huff (R-Diamond Bar). "Obviously, the wolves are tearing the sheep apart right now in figuring how to spend it."
California's persistent budget woes came to represent the plight of states struggling through the recession as tax revenue declined steeply, leaving governors and state legislatures around the country little choice but to consider deep cuts or unpopular tax increases.
Brown took both approaches. He pushed an austerity message that forced cuts throughout state government during his first two years in office while persuading California voters to approve increases to the state sales tax and on income taxes on high-income earners.
Despite the new revenue flowing in, Brown has warned his Democratic colleagues who control both houses of the state Legislature that they must not overplay their hand and spend too freely. The governor wants to build a reserve fund for future downturns to help smooth the type of boom-and-bust budget cycles that have become chronic in California.
"And I'm determined to avoid the fiscal mess that the last few governors had to deal with," Brown said. "The way you avoid it is by holding the line, by exercising a common sense approach to how we spend our money."
His budget contains an $850 million surplus.
Brown wants to focus the additional spending on public schools. His budget includes $2.7 billion more for K-12 education, which will account for 57 percent of general fund spending.
Among Brown's priorities is creating a new education funding formula. It would be aimed at giving school districts more control over spending and directing state money to the neediest children and poorest districts.
His proposal is expected to run into opposition from lawmakers representing more affluent regions of the state, but Brown said the state should spend proportionally more on students who have "disproportionate challenges."
"Growing up in Compton or Richmond is not like it is to grow up in Los Gatos or Beverly Hills or Piedmont," he said of his redistribution plan. "It is controversial, but it is right and it's fair."
Spending cuts are still expected in some areas, such as the courts, while health care programs and social services are expected to see no increases in spending.
The state's two four-year higher education systems, the University of California and California State University, each will receive $250 million more.
Speaker Pérez said the increased spending for higher education comes with an explicit expectation that universities won’t turn around and increase costs for students.
“They cannot have any doubt in their mind that if they attempt to do fee increases — if they succeed in fee increases — that they will not be treated as well in future budgets," Pérez said. "Because we’re not going to give them money just to have them drive up the costs for students that are already being squeezed out."
California's general fund spending hit a high of $103 billion before the recession decimated the state's economy and severely cut tax revenue for the state and municipalities. It dropped to a low of $87 billion during the 2011-12 fiscal year, requiring lawmakers to make deep cuts in a wide array of state services, including K-12 schools, higher education, the court system, and social services for the needy and disabled.